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Foreign investments into Russia. Tax consequences.
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• Legal basics
• Federal Law On Foreign Investment in the Russian
  Federation (Law on Foreign Investments) from
  July 9, 1999, N 160-FZ
• Civil Code (4 parts),
• Tax Code (2 parts),
• Federal Law On Joint-Stock Companies from
  December 26, 1995, N 208-FZ,
• Federal Law On Limited Liability companies,
  from February 8, 1998, N 14-FZ,
• etc.

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Main forms of commercial activities in Russia -
Export/import of commodities or services without
permanent presence in Russia, - Joint activities
through a partnership, - Activities through a
representative office, - Activities through a
Russian legal entity (a subsidiary).
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Russian legal entities 1. Commercial 1.1.
Unlimited partnership a partnership whose
members (partners) are fully liable for its
obligation, 1.2. Limited partnership a
partnership within which several partners have
full liability and at least one partner has
limited liability (to the extent of such
partners contribution), 1.3. Limited Liability
Company a company in which the liability of
each participants is limited to the extent of
such participants contribution, 1.4. Additional
Liability Company a company in which the
participants are, in addition to the extent of
their contribution, equally additionally liable
in accordance with a multiple applicable to all
their contributions, 1.5. Joint-Stock Company
(open and closed), 1.6. Production cooperative
an association of individuals for joint
production and other economic activities based on
membership or personal labor or other
participation, 1.7. Unitary enterprise legal
form reserved for state and municipal
enterprises. 2. Non-commercial.
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Registration of Commercial Organizations Law On
State Registration of Legal Entities and
Individual Entrepreneurs from August 8, 2001, N
129-FZ Documents which are necessary for the
registration - an application for state
registration in the established form, - the
decision of establishing of a legal entity, - the
legal entitys foundation documents, - excerpt
from the relevant register of legal entities of
the country of the founders origin, or any
other certificate proving the legal status of the
foreign legal entity, - receipt for payment of
the state registration duty in the amount of 2
000 rubles (approx. 55 euro). State
registration must be carried out within 5 days as
of the moment of submission of the documents to
the tax body.
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Registration of Commercial Organizations Upon
completion of registration a company receives 1.
Certificate of registration of the legal
entity, 2. Certificate of the companys
registration as a taxpayer with the local tax
authority, 3. Information letter issued by the
Territorial Body of the Federal Service of State
Statistics on the Companys registration
therewith. 4. The legal entitys foundation
documents with stamp of tax body, 5. Excerpt from
Single State Register of legal Entities. Then by
post 6. Notice on the companys registration as
a payer of pension contributions with the
Territorial Body of the Russian Federation
Pension Fund, 7. Notice on the companys
registration as a payer of insurance premiums
with the Territorial Body of the Russian
Federation Social Insurance Fund, 8. Notice on
the companys registration as a payer of
insurance premiums with the Territorial Body of
the Russian Federation Obligatory Medical
Insurance Fund
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Limited Liability Company Closed Stock-Joint Company
Way of creation Articles of Association and Charter (if there is only one participant only Charter) Articles of Association and Charter (if there is only one participant only Charter), Registration of issuance of shares with Federal Service for Financial Markets
Max. quantity of shareholders (participants) 50 50
Share capital Min. 10 000 roubles (50 must be paid before state registration, 50 - within one year after) Min. 10 000 roubles (50 must be paid within 3 month after state registration, 50 within 1 year)
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Limited Liability Company Closed Stock-Joint Company
Shares (parts) Share capital is divided by parts (which considered to be rights) Share capital is divided by shares (which considered to be securities)
Increasing share capital Registration with tax authorities amendments to the Article of Association and Charter Registration with tax authorities amendments to Charter. Registration of issuance of shares with Federal Service for Financial Markets
Transfer of shares (parts) Registration with tax authorities of amendments to Article of Association and Charter No need for state registration. Writings in the register of shareholders.
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Limited Liability Company Closed Stock-Joint Company
Right to exit Participant may exit at will. In this case he is entitled to receive from LLC price of his part. Shareholder has no right to exit (he may sell his shares).
Exclusion of participant (shareholder) Possible (by way of court trial). Impossible
Managerial Bodies 1. General Participants Meeting, 2. Board of Directors (Supervisory Board), 3. Executive Bodies (General Director and may be Directorate) 1. General Shareholders Meeting, 2. Board of Directors (Supervisory Board), 3. Executive Bodies (General Director and may be Directorate)
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Withholding taxes - passive income (such as
dividends, interest, royalties), fines, - income
from sale of immovable property and shares
related to charter capital, which consists of
more than 50 of immovable property, - lease
income, - freight, - international
transportation, received by foreign legal
entities from sources in Russia is subject to
profits tax withholding at source.
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Tax rates Unless lower Double Tax Treaty rates
apply, the domestic withholding rate for -
dividends is 15 , - interest, royalties and
other types of income listed in the tax code
(except freight) is taxed at 20 . To enjoy
Double Tax Treaty benefits, a foreign legal
entity should provide to a Russian tax agent
(paying company) a residence certificate from the
tax authorities.
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Some current problems 1.Royalties for trademarks
with Russian origin. An aggressive scheme of tax
optimization. 2.Beneficial ownership. Conceptio
n is not determined in Russian legislation and
practice. 3.Thin capitalization. Rules have a
loopholes.
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Morozov Andrei Head of Legal Department MCFR-cons
ulting Tel. [phone] ext. 1705 Fax. 7
495 937 90 86 ext. 2431 Amorozov_at_mcfr.ru www.mcfr
-consulting.ru