Russia is the fifth-largest European economy, making it a global hotspot for companies looking to enter Russian markets. Despite the ongoing political turbulence, businesses looking to harness international opportunities realize the immense potential that Russia offers. This is why many foreign companies continue to choose to open subsidiaries in Russia.
While the Russian market is open to interested international enterprises for setting up a subsidiary in Russia, the entire process can be in fact excruciating. This is because setting up a subsidiary business in Russia involves a web of complex processes, which vary depending on the legislative region you choose. That’s why it is highly recommended for enterprises to outsource these operations to a third party. Continue reading to find out more about setting up a subsidiary business in Russia.
What Are the Types of Subsidiaries in Russia?
A subsidiary business in Russia means that a Russian enterprise with its majority of capital and shares with voting rights is represented by a foreign legal entity. If you are a company looking to venture into a subsidiary business in Russia, there are various points you need to deliberate upon. The primary one begins with narrowing down to the type of subsidiary you wish to set up. There are two types of subsidiary systems in Russia:
Private and Private Limited Liability Company
You can do the incorporation of foreign subsidiaries in Russia in the form of a private limited liability business. This is one of the most popular company structures in Russia. Likewise, you can also open a subsidiary business in Russia as a public limited liability company under both open and closed alternatives.
The minimum share capital required for such company structures of RUB 10,000. Half the amount is mandatory to be paid before initiating the registration process.
Joint Stock company
Two types of joint-stock companies can be opened in Russia, which include open and closed. In an open joint-stock company, the shares are freely transferable. Whereas in a closed joint-stock company, the shares are only limited to be transferred between the shareholders in the company.
How to Set up a Russian Subsidiary?
Setting up a subsidiary in Russia typically takes around a month. The process includes prerequisites without which you may not be able to open a subsidiary business in Russia. Let us look at the essential checklist for the incorporation of a foreign subsidiary in Russia.
- Preparing documents related to setting up a subsidiary in Russia begins with a visa or residence permit
- Notarizing the foundation deeds
- Depending on the subsidiary type, deposit the minimum amount in the local bank
- Register for a single number of state registration
- Obtain the tax identification number from the Federal tax services
- Obtain your VAT number
- Obtain other essential licenses required for opening any subsidiary business in Russia
- Register your company with the Russian municipality and the Moscow Center of Quotations of Work Places
Benefits of Setting Up a Russia Subsidiary
Russia encourages domestic and international enterprises, which is why they both enjoy the same entrepreneur rights. Unlike in other small countries, setting up a subsidiary in Russia is not a bureaucratic process. This implies parent foreign companies can establish their subsidiary in Russia without much hassle within eight weeks. From taxation benefits to easy licensing policies, setting up a subsidiary in Russia comes with a lot of benefits. Some of the benefits are mentioned below-
- Subsidiaries in Russia are distinct legal entities. All the laws and business licenses can be applied if the subsidiaries need to.
- Since Russia promotes such subsidiaries, the subsidiary business in Russia enjoys taxation benefits, such as corporate tax incentives, double tax treaty, etc.
- Lesser time required to incorporate a wholly-owned subsidiary in Russia.
Documents to Prepare When Opening a Subsidiary in Russia
Even though you know the prerequisites for setting up a subsidiary in Russia, you might still wonder how to register for a subsidiary company in Russia. Well, here are the things you must do to set up a subsidiary company in Russia.
- Notarization of the foundation deeds and bank signature card
- Depositing the minimum capital or shares of the subsidiary business in Russia in an in-country bank account
- A single number of State Registration
- Tax Registration number and Identification from the Federal Tax Services.
- Intimating Federal Tax services about the subsidiary business in Russia
- Registration in the Moscow Center of Quotation Work Places (subject to the state’s legislation).
Either you can hire staff to perform these registrations for setting up a subsidiary in Russia, or you can hire us to do that work for you!
Here are the documents that the parent company usually requests for setting up a subsidiary company in Russia:
- Memorandum of Association of the foreign company
- Foundation documents of the subsidiary business in Russia
- Certificate of the Power of attorney and trade registers
- Certification of the Federal tax registration
- Bank documents related to the subsidiary business in Russia
- Accreditation of the state register of the foreign company.
- Decision letter of the director appointment
- Passport documents of the director of the foreign company, including proof of residence in Russia.
What Business Forms Can Russian Subsidiaries Take?
Best suitable for sectors such as banking, insurance, manufacturing, and trading, setting up a subsidiary business in Russia is not limited to these. Two kinds of joint-stock companies can be opened in Russia. Open public limited liability subsidiary business in Russia is where the shares are freely transferable to the public. This joint-stock company requires a minimum share capital of 100K RUB.
On the contrary, in the Closed public limited liability subsidiary business in Russia, the shares are not accessible to the public and can be transferable only between the company’s stakeholders. A closed joint-stock company requires a minimum share capital of 100K RUB.
Russia Subsidiary Laws
Various subsidiary laws are applicable as per the legislation of Russian states. You must be highly vigilant when adhering to these subsidiary laws, as single negligence can make you pay hefty financial penalties. The basic subsidiary structure requires the following:
- Your company can be established under the Russian private and public subsidiary systems.
- One or more shareholders must find the subsidiary business in Russia with an upper limit of 50 shareholders.
- The minimum share capital for the subsidiary company formation in Russia is 10K RUB.
- Half of the minimum share capital must be deposited before registering your subsidiary business in Russia in an in-country bank account.
- The other half of the capital should be deposited within three months from the initial date of the incorporation of the wholly-owned subsidiary in Russia.
- Your subsidiary business in Russia must be registered with tax authorities in Russia.
Post Incorporation Compliance
Some sectors in Russia are under Federal legislation. Unless you have the necessary registrations and approvals, you can begin operating even after setting up a subsidiary in Russia. Some businesses that require strict licensing and permits include (but are not limited to)
- Private schools,
- Banks,
- Money lenders,
- Travel agencies,
- Liquor retailers and distributions.
Your subsidiary business in Russia must be registered with an office address. The regular working hours of any office are at least 40 hours long and, in some cases, it can go beyond 50 hours per week. Sunday is a typical day off.
Your business must have a registration number issued mainly by the Moscow Center of Quotation Work Places. However, depending on the region you choose, you must apply for a state registration number as applicable to that particular state legislation.
Taxation on Subsidiaries in Russia
Tax laws related to subsidiary business in Russia are very favorable for foreign investors. You would be surprised to know that opening a branch is more cost-heavy in terms of registration costs than setting up a subsidiary in Russia. Moreover, the profits earned by the foreign subsidiary are either not subject to tax in Russia or are relaxed.
Corporate Tax
The corporate tax rate of subsidiary businesses in Russia is 20%. The subsidiary in Russia needs to be registered with the relevant tax authorities. However, certain exemptions exist for a 0% corporate tax rate for different entrepreneurial ventures.
Value Added Tax
The value-added tax employed on real estate transactions is 18%. However, this only applies to individual entrepreneurs with more than 2 million RUB turnover in three months.
Individual Property Tax
The land tax in Russia is highly affordable, with a 0.3% rate applicable for using land for various agricultural purposes. Likewise, a 1.5% tax is levied when purchasing the land for residential or other utility purposes.
Withholding Tax
Withholding tax in Russia is presently levied at 15% for foreign companies. A 20% withholding tax is applicable for nations that do not have a double taxation treaty with Russia.
Tax Incentives for Businesses Setting Up a Subsidiary in Russia
Taxation of foreign subsidiaries in Russia is highly encouraging for foreign investors.
Corporate Tax
Subsidiary businesses in Russia can enjoy multiple tax incentives per the Federal Laws of 2018 (No. 290-FZ – 294-FZ). For example, companies holding at least 15 % of the distributing company for a year can enjoy a 0% tax rate.
Expert staffs at Multiplier understand how actual tax savings are for your company’s growth. That is why we do in-depth, personally tailored research to help you benefit from different tax incentives that Russian subsidiary and taxation laws offer.
Double Tax Treaty in Russia
The double taxation treaties signed by Russia with other nations protect the profits earned by the subsidiary in Russia. However, the company branch office in Russia will only have to pay taxes for the income generated within the country.
Other Important Considerations
While you may think you know all about setting up a subsidiary business in Russia, subsidiary laws are so complex that they are beyond the scope of this blog. That is why we recommend utilizing our staff for setting up a subsidiary in Russia. But before you connect with us, let us look at other significant considerations when involved in the incorporation of the wholly-owned subsidiary in Russia.
The shareholders’ contribution to the share capital determines the liability of the shareholders. Appointing a board of directors is a must. A company can also establish a supervisory board, but it is unnecessary. A board of directors and an executive committee should ensure the management of your subsidiary business in Russia. The general meeting of the shareholders must appoint the executive committee.
How can Multiplier’s Employer of Record Help You Hire & Expand in Russia?
Setting up a subsidiary in Russia is not limited to merely finding office space or hiring potential employees. Overlooking a single detail required for setting up a subsidiary in Russia can cost you financial and legal penalties. If these warnings overwhelm you, do not worry. Our multiplier services are just a call away to help you have a hassle-free experience setting up a subsidiary in Russia.
From pre-registration processes and hiring employees to employee screening and payroll outsourcing, our services provide an easier and faster solution to navigate Russian subsidiary laws seamlessly.