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Chosing a business structure in Russia
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Choosing a business structure in Russia

What options do we have to set up a legal entity in Russia?

Foreign companies may choose among the following 4 options:

  1. Joint-stock company
  2. Limited liability company
  3. Representative office
  4. Branch office

We will now briefly discuss their basic advantages and disadvantages. (For more detailed information please address our comparative table here).

Joint-stock company (AO)

Foreign investors may establish a local corporation.

This type of a legal entity presents the following main advantages:

  • Limited liability as a corporation shareholder risks only his or her investment;
  • Shares in corporations can be freely bought and sold;
  • A corporation is a legal entity and is treated separately from its stockholders;
  • Easy fundraising by issuance of stock.

Disadvantages:

  • Double taxation;
  • Incorporation cost – formal incorporation requirements;
  • Cost of compliance with federal securities laws if you decide to go public.

Limited liability company (OOO)

Limited liability company or triple ‘O’ in Russian is the most common business structure in Russia. It is easy to set up, easy to manage and absolutely safe.

  • Minimum contribution of 10,000 Rubles;
  • LLC is a separate legal entity so it can sue or be sued in its own name; 
  • All owners are subject to limited liability and therefore have no personal liability;
  • Owners’ liability is limited to their capital contributions;
  • Even if you are LLC sole member, you will be never treated in Russia as sole proprietor for tax purposes so, basically, liability cannot be extended.

LLC members are entitled to distribution of profit in proportion to their capital contributions, but other proportions cannot be agreed upon.

LLC cannot avoid double taxation in Russia – earnings and profits are first taxed at LLC level and then when profits are distributed at investor level.

LLC is, in our opinion, the most advantageous business structure for foreign investors intending to set up privately-owned businesses.

Representative Office

Setting up a representative office in Russia is best if you do not need a branch office or subsidiary. This is the case, for example, if you need to conduct market research in Russia or you will be selling your products from abroad, but need a fixed place in Russia for representative purposes.

Representative offices are best suited for non-transactional operations, and, most importantly, they are the least regulated and exempt from income tax.

It is important to bear in mind, though, that you cannot run a business through a representative office.

Branch office

If you would like to run a business in Russia as a foreign entity, you could set up a branch.

A branch must obtain accreditation to operate in Russia.

Please note that a branch is treated as a permanent establishment for tax purposes, so you will have to pay income tax on its earnings and profits in Russia.

The main advantage of setting up a branch is that you can avoid double taxation, because a branch is not a separate entity, so you do not need to distribute profit. Once profit is earned, it is all yours!

How can Accountor help?

Accountor Russia can help you to choose a business structure that is best suited to your needs and help you register your company in Russia. 

For more detailed information on differences between business entities in Russia please address our comparative table.

Feel free to contact us.

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