General legal provisions
Russian investment legislation provides foreign firms with ample opportunities to invest in Russian enterprises and to establish their own subsidiaries. Foreign companies have the right to create 100% subsidiaries in Russia, as well as to acquire up to 100% of the stake in existing public and private enterprises.
To create a subsidiary, foreign companies must choose its legal form. As a rule, most often foreign companies when entering the market in Russia choose LLC (“limited liability Company”) or JSC (“joint Stock company”). Such forms as a Limited partnership or a General partnership are used less frequently.
Primarily, for the creation of enterprises with 100% share of foreign capital, choose the company as this form the most simple in creation and management unlike AO or Partnership. The JSC is created in the form of a non-public or public JSC, the creation and functioning of which is complicated by the observance of mandatory norms of the Central Bank. However, non-public joint-stock companies are most convenient for the creation of joint ventures, since there are certain restrictions on the exit of a participant from the company or the sale of its share.
To study the market, find partners or implement any temporary projects, foreign companies also open their representative offices or branches in Russia.
LLC is a legal entity, i.e. independently bears its rights and obligations, enters into contracts on its own behalf and is not liable for the debts of the company or citizen who established it.
Participants in the LLC bear limited liability for the company’s debts within the limits of their contributions to the company. The number of participants can not be more than 50. LLC may consist of one participant. The minimum authorized capital is 10,000 rubles (approx. 100 Euro). The Charter of the company is the constituent documents.
The Supreme governing body is the General meeting of the company’s participants, in addition, the Board of Directors (Supervisory Board), as well as the Executive bodies: General Director and the management Board.
As a rule, in subsidiaries of small and medium-sized foreign companies, the Board of Directors is not created, decisions are made directly by the company’s members, and operational activities are carried out by the General Director, who under Russian law can be only one in the company.
The law on LLC, unlike JSC, gives participants the right to withdraw from the company at any time and at the same time to receive their share, which is determined based on the current value of the company’s assets.
The company has the right to distribute the net profit among its participants quarterly, every half year or once a year.
Procedure of registration of the Russian company
The company is legally capable from the moment of its state registration. Registration of legal entities in Russia is carried out by the tax authorities at the location of the company. The term of registration under the law on registration of legal entities is 5 working days. After registration, the company has the right to make the company’s seal and open Bank accounts for business.
The following documents are required for registration:
– statement on the establishment of the society
– company’s constituent documents
– decision on the establishment of the company
– copy of extract of commercial register of a founder-inostrannoy company
– receipt of payment of the state fee of 4000 rubles.
Documents that have been made abroad require appropriate apostilization (legalization) in the state bodies of a foreign state.
Thus, the procedure for establishing a company in Russia is relatively simple and does not require significant time and financial costs.
Investments in Russian enterprises
In recent years, Russian tax and investment legislation has become much more liberal in relation to foreign investors. Foreign companies have the right to acquire shares in state and municipal enterprises (exceptions are military-industrial, space industries and natural monopolies: energy, Railways). Restrictions for foreign investors remain in the field of banking, insurance,aviation, mining.
In other industries, like engineering, textile, food, electronics, etc. foreign investment is welcome.
Tax legislation allows regional and local authorities to establish tax benefits. They may apply to all enterprises located in the region, as well as to a particular enterprise whose activities fall within the list of the most attractive industries for which investment benefits are provided (for example, electronics or automotive).
In accordance with the Federal law “on foreign investments in the Russian Federation” of July 9, 1999 N 160-FZ foreign investor has the right to invest in the territory of the Russian Federation by:
– share in organizations created jointly with Russian legal entities or citizens;
– creation of organizations fully owned by foreign investors, branches of foreign legal entities;
– acquisition of shares, interests, shares and other securities;
– acquisition of other property rights and other activities not prohibited by the current legislation.
The Law also stipulates that the legal regime of foreign investors ‘ activities and the use of the profits derived from the investment cannot be less favorable compared to Russian investors, except for the following exceptions:
– exceptions of a restrictive nature may be established by Federal laws only to protect the foundations of the constitutional system, morality, health, rights and legitimate interests of other persons and the security of the state ;
– exemptions of a stimulating nature (benefits for foreign investors) can be established only in the interests of the development of the Russian Federation.
The law “on foreign investments in the Russian Federation” also provides guarantees that the state provides to foreign investors, such as
– the legal regime of foreign investors ‘activity may not be less favorable than the legal regime of Russian investors’ activity, unless otherwise provided by the laws;
– free use of profits after payment of all necessary taxes for reinvestment;
free export outside of the Russian Federation property and information originally imported into the Russian Federation as a foreign investment;
– prohibition of forced seizure of property, including nationalization and requisition, except as provided by law;
– protection from unfair actions (inaction) of state bodies;
– acquisition of property, shares or shares of state and municipal enterprises in accordance with the laws of the Russian Federation;
– participation in the privatization of state and municipal enterprises in accordance with the laws of the Russian Federation;
– acquisition of land in Russia in accordance with the laws of the Russian Federation;
– protection of investment projects from adverse changes in tax or customs legislation, but not longer than 7 years from the date of financing.
In addition, the Russian legislation in accordance with the Law “on special economic zones” provides certain territorial areas with a special tax and customs regime, which operates within this area.
Taxation and accounting
Russian tax legislation, as a rule, has no differences in the particular taxation of a company with foreign capital or a purely Russian company. The peculiarity is that Russia has concluded agreements on avoidance of double taxation with a number of countries, including Germany. This agreement generally applies to tax on profits of enterprises tax on property of enterprises income tax on individuals and tax on property of physical persons.
Thus, companies must pay the following basic taxes:
* Income tax. The company’s profit is taxed at the rate of 20%.
* Dividends paid by the company to a foreign company participant-15%.
* Property tax – max 2.2%. The specific rate is established by regional legislation.
* Value added tax- 20%. For a number of food products and children’s goods and literature, the VAT rate is 10%.
* Personal income tax and the unified social tax. The company with employees in the state is obliged to collect income tax from the employee’s salary and transfer it to the budget. For Russian citizens and foreign citizens of the Russian Federation residents (who are more than 183 days a year in Russia) the rate of 13% for foreign citizens who are less than 183 days a year in Russia is 30%.
Since 2010, employers have paid contributions from the amount of wages separately to each state extra – budgetary Fund-the Pension Fund of the Russian Federation, the social insurance Fund of the Russian Federation and the mandatory health insurance Funds of the Russian Federation.
Income to the Pension Fund is 22%, 2.9% to the social insurance Fund, 5.1% to the mandatory health insurance Funds.
* Excise-depending on the excisable goods. Excisable goods include: alcoholic products, tobacco products, jewelry, cars, gasoline and oil products, as well as oil and gas.
• Customs duty. Determined on the basis of customs tariff.
• Land tax. The tax rate is set by local law.
The company is obliged to provide quarterly tax reporting, as well as at the end of the year the balance sheet and income statement.
2019, from Andrey Nikishenko