Representative Offices and Branches of Foreign Companies in Russia (December 2021)
1. Legal Status
The legal status of representative offices and branches of foreign companies is determined by the Civil Code of the Russian Federation and Federal Law No. 160-FZ dated 9 July 1999 “On Foreign Investments in the Russian Federation”.
Establishment and activities of representative offices of foreign banks and other credit institutions as well as those of foreign companies performing activities in the civil aviation sector are governed by special regulations.
A representative office or a branch does not have the status of a Russian legal entity but rather is a division of a foreign company in Russia.
The main distinction between a representative office and a branch is that a representative office exclusively performs representative functions (representation and protection of interests of the legal entity) while a branch performs the functions of a foreign company (in part or in full), including the representation functions.
A representative office or a branch acts on behalf of the represented foreign company and performs activities in Russia in accordance with Russian legislation. Issues related to taxation of the income of representative offices and branches of foreign companies are regulated by general provisions of the Russian tax legislation as well as by bilateral Treaties on Avoidance of Double Taxation entered into by the Russian Federation with respective countries.
In accordance with Russian legislation, a foreign company has the right to perform its activities in Russia through a representative office or a branch from the date of accreditation thereof. Accreditation is confirmed by a certificate of entry in the state register of accredited branches, representative offices of foreign legal entities (hereinafter, the “Register”) and an information sheet concerning the entry in the Register. Until accreditation is granted, representative/branch offices are not allowed to open bank accounts, lease premises, hire employees, undergo customs procedures or perform any other activities.This guide gives a brief overview of the issues related to establishing branches and representative offices and their activities in Russia.
2. Accreditation Procedure
The accreditation authority for representative offices and branches in Russia is the Federal Tax Service of the Russian Federation represented by Inter-District Inspectorate of the FTS No. 47 for Moscow. The said inspectorate is authorized to accredit all representative/branch offices of foreign companies regardless of the region where they perform their activities.
A respective application for accreditation shall be submitted to the competent authority within twelve months after the decision on opening of a representative/branch office has been taken by the respective foreign company.
The application shall contain information on the number of foreign citizens supposed to be employed by the representative/branch office certified by the Chamber of Commerce and Industry of the Russian Federation (hereinafter, the “RF CCI”). This RF CCI confirmation is also required where no foreign citizens are supposed to be employed by the representative/branch office.
The RF CCI charges a fee for the certification of the information on the number of foreign nationals employed by the representative/branch office in the amount of 18,000 roubles if the respective application is submitted in an electronic format and in the amount of 21,000 roubles if the documents are filed in person as a hard copy. The change in the information on the number of foreign employees is also subject to certification, the applicable fee amounts to 18,000 roubles. The information shall be certified within five business days.
Once the information on the number of foreign employees is certified, the application for accreditation of the representative/branch office may be submitted to the accreditation authority.
The application for accreditation shall enclose the following documents:
- an excerpt from the trade register or another document verifying registration of the foreign company in the country where it is located;
- a document confirming registration of the foreign company as a taxpayer in the country of its incorporation;
- the foreign company’s articles of association (or any other foundation document if applicable);
- the resolution of the foreign company to open a representative/branch office in Russia;
- the regulation on the representative/branch office;
- the power of attorney vesting the head of the representative/branch office in Russia with the necessary powers;
- a document confirming the payment of the state duty for accreditation of the representative/branch office.
All documents executed abroad must be legalized or apostilled and have a notarized translation into the Russian language.
The state duty for accreditation of a representative/branch office of a foreign legal entity amounts to 120,000 rubles.
Accreditation shall be completed within 15 business days, and the documents confirming accreditation shall be issued (or sent) to the applicant within 5 business days after the information on the representative/branch office has been entered in the Register. Therefore, the total period for receipt of the accreditation shall be up to 20 business days. Accreditation may be suspended by the tax authority (for up to 15 business days) if the foreign legal entity fails to submit the required documents or if the documents submitted thereby do not comply with the established requirements.
The accreditation term of representative/branch offices is unlimited. In case of change in the information on a representative/branch office, the respective amendments shall be made to the Register based on an application of the head of the representative/branch office to be submitted to the accreditation authority within 15 calendar days from the date when the relevant information has changed. The amendments to the Register shall be made by the accreditation authority within 10 business days as of the receipt of the application.
Accreditation of a representative/branch office may be terminated on the basis of a resolution of the foreign company that opened the respective separate division. In addition, the accreditation may be withdrawn by the decision of the accreditation authority in the following cases:
- the representative/branch office has failed to submit reporting documents required by Russian legislation on taxes and levies in the last twelve months, and the representative/branch office cannot be contacted at the address specified in the Register, and the representative office/branch has not conducted any transactions on at least one bank account;
- a court ruling has come into legal force establishing that the activities of the representative/branch office contradict the Constitution, international treaties, and legislation of the Russian Federation, pose a threat to the sovereignty, political independence and national interests of the Russian Federation.
3. Registration with the Competent State Authorities
In accordance with the procedure established by the Tax Code of the Russian Federation, foreign legal entities shall be registered with the tax authority at the location of their representative/branch offices, and the respective notification shall be issued by the tax authority within five business days after the information on the accreditation of the respective representative office or branch has been entered in the Register.
In addition, the representative/branch office shall be registered with the Federal State Statistics Service and the non-budgetary funds (the Pension Fund and the Social Insurance Fund).
In accordance with the Federal Law “On Foreign Investments in the Russian Federation”, the accreditation authority shall send the information required for registration of the representative/branch office to the authorised non-budgetary funds (the Pension Fund and the Social Insurance Fund) in an electronic form within three business days after the information on the accreditation of the representative/branch office has been entered in the Register.
However, currently in some constituent territories of the Russian Federation the tax authorities and the non-budgetary funds do not interact properly, which make it necessary for a representative/branch office to apply for registration with the non-budgetary funds independently.
4. Daily Business Issues
a) Management of the division
The activities of a representative/branch office shall be managed by the head of the representative/branch office who shall act on the basis of a power of attorney issued by the foreign company. The term of such a power of attorney is not limited by law and shall be determined by the principal.
It should be noted that the powers of the head of a representative/branch office must be certified explicitly by a power of attorney and may not stem only from instructions contained in the regulation on the representative/branch office or the foundation documents of the foreign company.
The head of a representative/branch office shall be entitled to delegate his/her powers in full or in part to another person if such possibility is provided for by the power of attorney issued to him/her.
b) Basic Documents
The relations between a representative/branch office and the parent foreign company are based on the following documents:
- the foreign legal entity’s foundation documents;
- the power of attorney issued to the head of the representative/branch office in accordance with the requirements specified in the previous subsection;
- the regulation on the representative/branch office, which must, in particular, contain the following information:
-the seat of the representative/branch office in Russia and the corporate seat of the establishing foreign company in the country of its incorporation;
-the objectives of establishing the representative/branch office and the types of its activities;
-the procedure for management of the representative/branch office (the powers of the head of the representative/branch office).
c) Engaging Foreign Employees
The general rules regulating foreign citizens’ labour activities in Russia are established by Federal Law No. 115-FZ dated 25 July 2002 “On the Legal Status of Foreign Citizens in the Russian Federation”, in accordance with which an employer is entitled to employ foreign personnel only if it has a permit to engage and use foreign employees, and a foreign citizen has the right to perform labour activities in Russia only if he/she holds a work permit.
Article 13 of the said law provides for an exception for work of employees of representative offices of foreign companies accredited in the Russian Federation on the basis of the principle of reciprocity in accordance with international treaties of the Russian Federation: employees of representative offices, to the extent of the number agreed during accreditation of the said representative offices, are not obligated to obtain work permits. However, it should be noted that Russia, at the time of preparation of this guide, has no treaties establishing the said principle of reciprocity with the majority of countries, in particular, Germany and Austria. Therefore, as a rule, foreign employees of accredited representative offices must obtain permits to work in Russia in accordance with the general procedure.
There are two main types of work permits that can be issued: an ordinary work permit and a work permit for highly qualified specialists (hereinafter, the “HQS”). The main differences are as follows:
- a HQS work permit is issued for a term of up to three years while an ordinary work permit - only for a maximum of one year;
- when applying for a HQS work permit, the employer does not have to obtain a permit to engage foreign employees and to search for candidates for the respective vacancy among Russian citizens, which is required for an ordinary work permit to be issued;
- the quotas for engagement of foreign employees are not applicable to HQS;
- HQS are exempt from the obligation to provide evidence of their knowledge of the Russian language, history and fundamentals of legislation;
- legislation requires that the amount of HQS salary should equal at least 167,000 rubles per month for most HQS;
- a HQS work permit is issued within 14 business days while the issuance of an ordinary work permit takes about three to four months.
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