FAQ

LLCs have several key advantages compared to JSC:

- Simpler Regulation: JSCs are heavily regulated, in particular the issuance and registration of shares.

- Simpler Incorporation: The incorporation process of an LLC is easier than for a JSC.

- Greater Management Flexibility: LLCs are not required (but are allowed) to form a board of directors to manage their affairs.

- Lower Minimum Capital Requirement: The minimum charter capital required for an LLC is only 10,000 RUB. Whereas in case of JSC, the minimum requirement is 100,000 RUB.

Representative offices generally have non-commercial nature and do not pay profits tax in Russia. As such representative offices may perform several non-commercial activities such as market research, seeking potential clients, product demonstrations, etc. In case representative offices do perform commercial activities, they are considered permanent establishments and are subject to Russian profits tax.

Unlike a Representative Office, Branch Offices have commercial nature and shall pay Russia corporate tax. Therefore, foreign companies might choose a Branch Office for doing business in Russia.

Both Representative Offices and Branch Offices are not separate legal entities and both of them need to be registered with the Federal Tax Service (FTS). As a result, the foreign parent company bears full liability for their activities without any limitations (whereas with an LLC, liability can be limited to the assets of the Russian subsidiary).

The Federal Tax Service is the authority responsible for registering new LLCs and JSCs. Therefore, to incorporate either an LLC or a JSC, one must submit all required documents to the FTS. Based on the aforesaid submission, the FTS makes an entry in the Unified State Register of Legal Entities (“EGRUL”).

However, the application form to register a Russian legal entity must be signed in front of a Russian notary (in certain cases applications can also be signed in front of a foreign notary or a Russian Consulate in a foreign jurisdiction).

If a resident of India wants to register a company in Russia, they should contact a law firm with international background operating in Russia. These firms can physically represent the Indian investor before the Russian Government Authorities (if a Power of Attorney is signed in their favor) and can draft the application form and all incorporation documents in English and Russian language. The following are the key steps which must be considered by the Indian resident: -

Upon consultation with a law firm, this firm shall, at the request of the resident, provide the following documents for signature

- A draft of the application to register a company in Russia;

- A Power of Attorney authorizing the lawyer/or law firm to act on behalf of the resident; and

- All other necessary incorporation documents (Articles of Association, foundation resolution etc.).

The Indian founder must book an appointment with the Russian Embassy or Consulate. It is strongly suggested to send an email to the Embassy with the attachment of draft versions of the aforementioned documents before the appointed date. The Consulates usually fix the appointment date and time and list the papers to be provided. The presence of a certified translator is also required; thus, the application shall be signed in Russian language.
On the appointed date, the founder must present his/her passport along with the aforesaid drafts such as application form, PoA etc. to the Russian Embassy or Consular Office for signature in front of the Consulate and certification. If the founder is a company, the passport of authorized representative along with the original documents of company with its translation are required to be presented to the Embassy or Consular Office for certification.
Upon certification of the documents, the resident must send the signed documents to Russia at the address of the law firm by courier post.
Once the law firm receives the signed documents in Russia, they can submit the required documents to the FTS to incorporate the company.
Upon verifying the submitted documents, if the FTS found no discrepancies or errors, it will make an entry in the Unified State Register of Legal Entities.

It is important to mention that after the registration of the legal entity, monthly and quarterly tax returns have to be filed to the FTS. Therefore, from the beginning, the company needs either an internal accountant to take care of the bookkeeping, or the accounting shall be outsourced to a professional accounting firm (e.g. KBK Accounting www.kbk-accounting.ru). There are fines for not submitting tax returns on time, additionally, bank accounts can be blocked and it is very time-consuming to restore activities.

Yes, foreign investors (including Indian investors) are allowed to acquire shares in existing Russian Companies, up to 100% ownership. However, for buyers from “unfriendly” jurisdictions (which basically include western states and do not include India), the approval for the Government Commission on Foreign Investment in Russia is required. Any transaction with Russian LLC participation needs to be signed in front of a Russian notary, otherwise it is void. Foreign companies, except those from “unfriendly” jurisdictions, have two options of the share acquisition in an existing Russian company: -

i. Acquiring shares; and

ii. Increasing the charter capital by admitting an investor as a member of the company.

In Russia, contracts are almost always concluded in written form although Russian civil law permits verbal form for contracts between individuals with a value not exceeding RUB 10,000. Absence of a written contract may lead to numerous risks, including tax and currency control risks or even constitute a violation. For certain transactions, for example, for share purchase transactions, a notarial form is required.

Furthermore, foreign trade contracts between a Russian and a foreign legal entity, should always be in written form. This is necessary for customs and currency control purposes.

Yes. As per Article 1210 of Civil Code of the Russian Federation, the parties may agree to choose foreign law to govern the rights and obligations of the parties. Thus, a foreign trade contract between an Indian and a Russian party can be governed by Indian law.

However, mandatory regulations of Russian law always apply (customs and currency control regulations, product certification and consumer protection laws etc.). Therefore, it is not advisable to use Indian law templates, that have not been reviewed from the Russian law perspective.

Сontracts in Russia are usually executed in Russian language. However, the parties may use a foreign language like English along with its Russian translation and in the event of inconsistency, the parties may specify which language version prevails (takes precedence). Foreign trade contracts can also be executed in English only, but a translation is always needed (e.g., for customs control and the banks). Therefore, foreign trade contracts are usually bilingual.

Yes. Pursuant to Article 13 of Federal Law No. 173-FZ "On Currency Regulation and Currency Control" of 10 December 2003, foreign companies (including Indian companies) can open accounts with banks in the Russian Federation in any foreign currency. Opening a bank account is mandatory for Indian companies that set up a branch or representative office in Russia, because certain payments (such as taxes and social contributions) can only be made from a Russian account. The Russian tax authorities have to be notified about any bank accounts opened. Usually, many documents have to be presented to the bank, in particular also a proof about the ultimate beneficial owner.

Regarding Russian limited liability companies (LLCs), opening a corporate bank account is mandatory for depositing charter capital and conducting business operations.

Indian investors qualifying as Russian residents for currency control purposes (e.g., an individual with a Russian residence permit or a Russian subsidiary) must notify the Federal Tax Service (FTS) upon opening any foreign account. Furthermore, they must also notify all transactions through such accounts.

Any transactions made with foreign parties by Russian residents for currency control purposes are subject to currency control. In particular, contracts with foreign parties must be registered with the Russian bank if the amount of liabilities under the concerned import or loan exceeds 3 million RUB, and 10 million RUB for export contracts. Any additions to such contracts as well as confirming documents should also be submitted to the bank.

It is crucial to ensure that the contract properly reflects actual relationship between the parties. Otherwise, this might constitute violation of Russian currency control legislation with fines up to 100% of the value of transaction considered illegal.

Moreover, a currency resident is obliged to ensure that all monetary obligations of foreign counterparties towards the resident are settled (performed or terminated) in a timely manner, in accordance with the contract and with Russian civil law.