Representative Office vs Branch in Russia

A foreign company can enter the Russian market without creating a new legal entity. Russian law offers two such forms: a representative office, which protects and promotes the interests of the parent, and a branch, which may carry out all or part of its business. A third option, a Russian subsidiary, is a separate company, usually an LLC. The choice affects tax, liability, staffing and how much commercial activity you can run in Moscow.

Comparing the Three Ways to Enter the Market

Neither a representative office nor a branch is a legal entity. Both act on behalf of the foreign company, which is liable for their obligations with all its assets. A subsidiary owns its property and bears its own risks.

If a representative office in practice signs sales contracts, the tax authority may treat it as a permanent establishment and assess profit tax.

Accreditation with the Tax Authority

Representative offices and branches become legal in Russia through accreditation with a specialised inspectorate of the Federal Tax Service. Information about them is entered into the state register of accredited branches and representative offices of foreign legal entities.

The application package usually includes:

• the parent's constitutional documents and an extract from the home commercial register;
• a decision to open the office and its regulations;
• a power of attorney for the head of the office;
• proof of the office address;
• confirmation of the state fee payment.

Foreign documents must be legalised or apostilled and translated into Russian with notarised translation. Changes to the regulations, the head or the address must also be accredited.

Tax Treatment of Each Form

A branch is normally a permanent establishment and pays Russian profit tax on income attributable to its activities. It also registers for VAT and pays property tax on assets in Russia. A representative office that performs only preparatory and auxiliary work may avoid permanent establishment status, especially where a double tax treaty with the parent's country applies.

Salaries of local and foreign staff are subject to personal income tax withholding and social contributions. Treaty benefits require a certificate of tax residence of the parent company.

Hiring Foreign Staff for the Office

Employees of an accredited office are hired under Russian labour law, with written employment contracts in Russian. Foreign nationals need work permits, and the number of foreign staff of a representative office is subject to specific rules. Heads of offices and specialists are often hired as highly qualified specialists, which simplifies migration procedures when the salary threshold is met.

Accounting and Reporting Obligations

An accredited office keeps tax records and files tax returns according to its status. A branch working as a permanent establishment files profit tax returns and VAT returns. Payroll reports are filed for all staff. Statistical reports may be required as well.

Missed reports lead to fines and blocked bank accounts. Plan the accounting set-up before the first employee is hired.

Closing or Converting the Office

To close a representative office or branch, the parent adopts a decision, settles with employees, tax authorities and counterparties and applies for termination of accreditation. Some companies later convert an office into a subsidiary once sales grow. That requires registering a new company and transferring staff and contracts.

Setting Up with Attorney E. V. Petrova

Attorney E. V. Petrova advises foreign companies on choosing the form of presence, prepares the accreditation package and supports hiring of foreign staff. Send a short description of the planned activity in Russia and the parent's jurisdiction.

The main channel of communication with the lawyer is email: lawyer@lawyer-moscow.com.