Establishing a legal presence in Russia

Russia

Introduction

Having decided the type of legal presence to establish in Russia, the next step is to register the presence with the relevant authorities. The registration procedure and the documents required for registration are very similar for a limited liability company or a joint-stock company whether open or closed, while registration procedures for a representative office are different. As shares in a joint-stock company, both open and closed, are treated as securities, there are certain additional requirements to register the securities with the Federal Commission for the Securities Market (FSC).

Although it may be possible to purchase a company 'off the shelf', the registration requirements for transferring ownership of the shelf company, changing the charter so that it reflects the business to be carried on by the investor and changing the name is no less bureaucratic, burdensome and time consuming as setting up a new entity from scratch. In addition, it may even be necessary to obtain the prior consent of the Anti-Monopoly Ministry for the acquisition of a shelf company! This is the case if the aggregate worldwide assets of the founders (and related companies) is greater than US$680,000 (being 200,000 times the statutory minimum monthly wage, which on 1 January 2004 was 100 roubles or US$3.4).

The registration procedure is quite simple as in December 2000 the government announced a plan to streamline the laws for registering new companies by introducing a 'one-stop' registration process to reduce the time and cost it takes to establish a corporate vehicle, and which procedure has been recently successfully implemented.

Registration Authorities

Representative Offices

The accreditation of a representative office involves obtaining a permit from one of several federal accreditation agencies. Foreign companies wishing to open a representative office in Russia usually choose between the Chamber of Commerce and Industry of the Russian Federation, the State Registration Chamber (SRC) of the Russian Federation, or the Ministry of Foreign Economic Affairs of the Russian Federation. Accreditation with any of these agencies enables a representative office to operate at federal level irrespective of where the representative office is physically located.

In addition to federal accreditation, a representative office must be registered at the local level. This requires registration with the local tax inspectorate, the Russian Federation State Committee on Statistics and three employment-related funds, which collect mandatory contributions from the payrolls of all entities operating in Russia. Certain legal requirements that apply to the registration of a company (see below), such as procuring a guarantee of a legal address and the execution of a lease, also apply to a representative office and a branch.

If the federal accreditation was granted by an agency other than the SRC, the documents must also be filed with this agency, as the SRC maintains the register of representative offices of all foreign companies accredited in the Russian Federation.

Representative offices should also open one or more bank accounts, and, for practical purposes, arrange to have a seal.

Companies

Pursuant to the Law on Registration of Legal Entities (the "Law on Registration") as of 1 July 2002 the State Tax Ministry of the Russian Federation is responsible for the registration of legal entities. The Law on Registration made substantial changes to the procedure for the registration and re-registration of legal entities (which was similar to the registration procedure for representative offices, described above) in that it transfers the function of registration to a single federal executive body – the State Tax Ministry.

The Law on Registration establishes a uniform procedure for the registration of legal entities regardless of their organisational and legal form and the kinds of economic activities pursued by them. Regional branches of the State Tax Ministry are required to carry out registration in accordance with centrally prescribed rules. In accordance with Article 1 of the Law on Registration, the registration process is governed by federal legislative acts. This provision is intended to restrict the legislative powers of the regions.

Further, on 23 December 2003 the Russian President signed into law amendments to the Law on Registration, which successfully completed the implementation of the "one-stop shop".

Registration Procedure

The Law on Registration provides for a "one-stop" registration avoiding the need for registration or notification with numerous other authorities as was required before.

State registration of legal entities should be made within 5 working days of the submission of the corresponding documents to the local branch of the Tax Ministry. A legal entity shall be deemed to be registered as soon as it is entered into the state register.

The application for registration and the requisite supporting documentation should be submitted to the local branch of the Tax Ministry in the administrative district stated in the application for state registration as the seat of its permanent executive body. The Law on Registration provides that the relevant documents can be submitted personally by the applicant, by its authorised representative, or can be sent by post. Upon receipt, the registration body is obliged to issue a receipt to the applicant. If the documents are sent by post the registration body is required to send the receipt to the address of the applicant by registered letter not later than the next day after the receipt of the documents and to obtain a confirmation of delivery.

All other authorities will be informed of the registration of a legal entity by the registration body and not by the applicant. The Tax Ministry shall, within five working days of state registration of a particular entity, provide registration data to employment-related funds of the Russian Federation, so that such Funds can effect their own registration of the entity (such as the Pension Fund, Social Security Fund and Medical Fund) .. The Tax Ministry shall be required to inform the employment-related funds not only of the fact of registration ofa legal entity but also of all changes made to the data on such legal entity contained in the register.

Registration Documents for Representative Offices

A list of the documents required by the authorities for a foreign company to register a representative office can be found in Appendix A. Many of the documents required are straightforward, such as copies of incorporation certificates and copies of articles of association or charters. Reference letters are, however, required from third parties, including one from a bank in the home jurisdiction of the foreign company.

The registration authorities apply strict rules both as to the form and content of these documents and also as to the manner of their execution. Incorporation certificates and articles of association must be filed as notarised copies with an apostille affixed if originating from a country that is a member of the Hague Convention, or, if from any other country, the documents must be legalized. The procedure for obtaining an apostille varies from country to country and an investor should check with a locally qualified notary or the requisite government office to determine how and where to obtain an apostille.

Reference letters from the bank as well as the letter from the tax authorities must also be notarized or have an apostille affixed, and thus it is necessary for an investor to liaise with the bank/local tax authorities to ensure that they understand the procedure to be followed. If documents have not been submitted in the prescribed manner the registration authorities may reject them and require them to be re-submitted. Documents that are dated any more than six months prior to the date they are filed with the Registration Chamber will not be accepted.

All documents must be in Russian or have a certified translation into Russian attached to them before the documents are submitted to the registration authorities.

The exact procedure for registering representative offices and companies may vary slightly from region to region within the Russian Federation, for example, in certain regions tax authorities may require a copy of an executed lease for office premises before it will register a representative office or a company.

Registration Documents for Legal Entities

The Law reduces the number of documents for registration of a new company to just four (five - for entities with foreign participation) and these are as follows (from 1 July 2003):

1. An application

2. A resolution on the establishment of the legal entity

3. Constitutional documents (charter and foundation agreement or decision on foundation)

4. A document confirming the payment of the registration fee

If one of the founders of the new company is a foreign legal entity, it will also be required to submit an extract from its trade register confirming its legal status. Other requirements with respect to the form of the documents have been determined by various pieces of Russian legislation. The documents prepared in foreign jurisdiction must be notarised and apostilled (or legalized, as applicable) and accompanied by a certified Russian translation.

The Law on Registration prohibits the registration authorities from requiring any other documents.

Contributions to Capital

The minimum share or charter capital of a Russian closed joint-stock company or a limited liability company is 100 times the statuary minimum monthly wage. On 1 January 2004 this was approximately US$3.40 and the minimum US dollar capital therefore was US$340.

Contributions to the charter capital of the Russian company may be made in cash or in kind. Contributions in kind may include securities, property, property rights or other tangible or intangible rights having monetary value. Certain rights that are granted exclusively to a shareholder or founder by Russian authorities – for example, licences – cannot be contributed to the company's capital if they are not fully transferable.

Exemptions from import duties and import VAT may be available for certain types of equipment, which are contributed to the charter capital of a company by a foreign shareholder or participant. The equipment must be categorized as a fixed industrial asset and must not be subject to any Russian excise tax.

Generally any asset, which is contributed to charter capital, must be valued by an independent valuer.

Formation of Charter Capital

No less than 50 per cent of the charter capital of a limited liability company or a joint-stock company must be contributed before the company is registered. The outstanding balance must be paid within one year from the date of the permanent registration certificate.

In order for a foreign investor to make cash contributions, an escrow account must be opened with a Russian bank in the name of the company being established.

Anti-Monopoly Ministry and Federal Commission for the Securities Market ("FSC")

If the value of the assets contributed by the founders of a company is greater than US$680,000 (being 200,000 times the statutory monthly minimum wage of 100 roubles as of 1 January 2004), the Anti-Monopoly Ministry should be notified of the registration of the company within 45 days of its registration. The information to be supplied to the Anti-Monopoly Ministry is prescribed by statute and the Anti-Monopoly Ministry may cancel the registration if the establishment of an entity may lead to a restraint of competition in the market. If an investor has any concern that the Anti-Monopoly Ministry may challenge the registration, there is a pre-notification procedure, which can be used.

Shares in any joint-stock company, whether closed or open, are considered securities and must be registered with the local subdivision of the FSC before the registration of the company is completed.

Appendix A

The following is a list of basic documents for the accreditation of a representative office of a foreign company in Russia:

1. Charter or Articles of Association of the parent company

2. Certificate of Incorporation or Extract from the Trade Register for the parent company

3. Reference letter from the parent company's bank

4. Power of Attorney for the head of the representative office

5. Power of Attorney to complete the accreditation and registration

6. Letter from the tax authorities confirming the registration of the parent company with the tax authorities in the country of its residence

7. Resolution of the parent company or founder to set up a representative office

(Note: The above documents should be legalized or apostilled and a certified Russian translation of the documents should be attached to them.)

8. Regulations of the representative office

9. Two letters of recommendation from Russian business partners

10. A letter of consent from the local authorities approving the location of the representative office (if it is to be established outside Moscow).

For further information please contact David Griston at: [email protected]