Launching your business in another country: A comparison between Brazil and Russia company formation procedures
To international capital markets, the balance of payment remained stable, with the real effective exchange rate slightly depreciating. The current account surplus shrank as the trade surplus decreased on lower export receipts, especially in the first half of the year. An incipient import recovery was an additional negative factor for the trade balance in the second half of 2016.General overview (Russian Federation) -
Russia is the largest country in the world by surface area, covering more than one-eighth of the Earth's inhabited land area, and the 9th most populous, with over 144 million people at the end of March 2016. The European western part of the country is much more populated and urbanised than the eastern; about 77% of the population live in European Russia. Russia's capital Moscow is one of the largest cities in the world (12.4 million people).
According to the Constitution, the country comprises 85 federal subjects. These subjects have equal representation (two delegates each) in the Federation Council. However, they differ in the degree of autonomy they enjoy. They are divided in: 46 oblasts (provinces), 22 republics, 9 krais (territories), 4 autonomous okrugs (autonomous districts), 1 autonomous oblast (the Jewish Autonomous Oblast) and 3 federal cities (Moscow, Saint Petersburg, and Sevastopol - ex-Ukraine).
Although Russian is the only federally official language of the Russian Federation, there are several other officially recognized languages within Russia's various constituencies – article 68 of the Constitution of Russia (The Constitution of Dagestan) only allows the various republics of Russia to establish official (state) languages other than Russian. 32 languages are listed.
According to the Constitution of Russia, the country is a federation and semi-presidential republic, wherein the President is the head of state and the Prime Minister is the head of government. The Russian Federation is fundamentally structured as a multi-party representative democracy, with the federal government composed of three branches: Executive, Legislative and Judiciary.
The president is elected by popular vote for a six-year term (eligible for a second term, but not for a third consecutive term).
Russian ruble is the unit of currency of the Russian Federation.
Russia's vast geography is an important determinant of its economic activity, with some sources estimating that Russia contains over 30 percent of the world's natural resources.
In January 2016, the US company Bloomberg rated Russia's economy as the 12th most innovative in the world, up from 14th in January 2015 and 18th in January 2014. Russia has the world's 15th highest patent application rate, the 8th highest concentration of high-tech public companies, such as internet and aerospace and the third highest graduation rate of scientists and engineers. Former finance minister Alexei Kudrin has said that Russia needs to reduce geopolitical tensions to improve its economic conditions.
Despite adverse terms-of-trade conditions in 2016 and continued restrictions on Russia’s access
Today, Russia's economy is still feeling the harsh impact of those measures, which coincided with a crash in global oil prices that cut deeply into revenues from the country's main export.
Unemployment in Russia decreased slightly, inflation slowed and real-wage growth resumed. But poverty also increased, as the sharp decline in pension income more than offset the incipient recovery in real wages.
Brazil and Russia have expanded bilateral relations in recent years. Trade flows between the two continent-sized countries have become even more intense in recent years, reaching US$ 4.3 billion last year.
With weather limitations caused by its long and intense winters, Russians need to stock up on products from other countries. Meats, seeds, sugars, confectionery and food preparations are among the items most often exported to Russia. In 2016, 60% of Russia's animal protein imports came from Brazil.
Company formation -
The process of company formation in Russia is similar to that in Brazil. There is the Commercial Board called “Chamber of Commerce and Industry of the Russian Federation” or “Торгово-промышленная палата России” that registers the social contract, as well as the registration of the company in the public bodies, at the federal, state (provincial) and municipal levels.
There are several forms for a foreign investor to start business in the Russian Federation. Foreign investor may set up (or register) a Russian legal entity in the form of limited liability company (LLC), joint-stock company (which can be private or public - SA) or partnership. The other way is to register a representative or branch office of a foreign company in Russia.
A limited partnership (LTD) and limited liability company (LLC) are both types of business entities formed under state law. They are similar in structure due to the fact that limited liability companies, or LLCs, are designed to combine the benefits of both partnerships and corporations.
a. Sole ownership -
Limited Liability Company or Private Joint Stock Company can be founded by an individual (Russian or foreign) or by a legal entity.
The founding document at Sole ownership company is a Charter. Such company doesn’t have some management bodies such as General Meeting of the Founders. There is no Board of Directors. All the decisions are taken by the sole founder. Accordingly legislative requirements on calling of the general meetings, and other procedural requirements do not apply to such company.
The management of the company is done by issue of written decisions of the fonder. If the founder is also a General Director in the company the decisions are made by issuance of orders.
At the same time such company is a separate legal entity, its assets are legally isolated from the assets of the founder.
b) Formation of a Russian legal entity. General information.
Stages of registration of a Russian legal entity:
Registration at the Tax authority - 5-7 working days;
Registration at the State Committee for Statistics - 2-5 working days;
Making of the seal of the Company - 2-5 working days;
Registration at non-budgetary funds (Pension Fund, Social Security Fund, Obligatory Medical Security Fund) is done by tax inspectorate;
Opening of the bank account (depends on the bank);
Registration of the shares issue with the Federal Services for Financial Markets (applicable only to Private and Public Joint Stock Companies) - 24-30 working days.
Total estimate: 30 days.
In order to get more information on the different types of entities that you can establish in Russia see the Comparison Table below:
|Russian legal entity||Subdivision of a foreign company|
|Limited liability company (LLC)||Private joint stock company (PJSC)||Representative office (RO)||Branch|
|LLC and PJSC are Russian legal entities. They may conduct any form of commercial activity, provided it is not prohibited by the Russian legislation. For conducting any licensed type of activity it is necessary to obtain license. The number of shareholders/participants in PJSC/LLC can not exceed 50. Any Russian and foreign companies and persons may be founders and shareholder in any number of Russian companies.The company may be established by a single founder, as long as the founder is not a company owned by a single legal entity or individual. Some peculiarities exist for the companies with single founder.||RO and Branch of a foreign legal entity are not considered as a separate legal entity. RO and Branch are subdivisions of a foreign company. They are considered as Russian non-resident entities for currency control purposes|
|RO is a subdivision of a foreign legal entity that represents the company’s interests in Russia. ROs officially are not allowed to undertake commercial activity, in Russia.||Branch is a subdivision of a foreign legal entity that may conduct commercial activity.|
|Registration and Accreditation|
|Registration is done by the Tax authorities, which keep the United State Register.Company also shall be registered with State Committee for Statistics and three non-budgetary funds (Pension fund, Obligatory Medical Security fund and Social Security fund).||ROs and Branches may be accredited at several state bodies, such as State Registration Chamber (GRP), Chamber of Trade and Commerce and various Ministries of the Russian Government, although the Consolidated State Register of ROs and Branches is kept by GRP.ROs and Branches also shall be registered with the Tax authorities, State Committee for Statistics and three non-budgetary funds (Pension fund, Obligatory Medical Insurance fund and Social Security fund).|
|Registration and Accreditation duties and charges|
|Registration duty is 2.000 rubles (~70 USD).There are also charges for registration of company’s seal, registration at State Committee for Statistics, which amount in general to no more than ~80 USD.||Accreditation charges of the GRP depend on the term for which a RO is set up1 year – 1000 USD2 year – 2000 USD3 year – 2500 USD||Accreditation charge of the GRP for 1, 2, 3 and 5 years accreditation is 60,000 rubles (~2150 USD).There is also a state duty which is also 60,000 rubles (~2150 USD).|
|Minimum authorized capital for LLC and PJSC is 10,000 rubles (~370 USD)||There is no requirement for the authorized capital.||Under the Federal law there is a requirement to form assets, but the amount is not stipulated.|
|At least 50 per cent of the authorized capital shall be paid-up prior to the company’s registration.||50 per cent of the authorized capital shall be paid-up within 3 month upon the registration.|
|LLC and PJSC have a three-tier management structure consisting of (1) the general meeting, (2) the board of directors, and (3) the executive body.General meeting is the highest management body and it must meet at least once a year.Board of Directors effects general supervision of the company’s business activities which are not referred to the competition of the General meeting.Executive body of a company may be represented by both an individual and collegial body. The executive body acts pursuant to the Charter document and doesn’t need a POA.||For both the RO and Branch an executive body (Head of RO or Branch) should be appointed by the foreign legal entity.Such executive body acts pursuant to the Power of Attorney issued by the foreign legal entity.|
|Authorized capital is divided into shares/units which represent rights and obligations of a shareholder/participant in accordance with their participations in the authorized capital.||Non applicable|
|A unit is not a security.The units can be sold to anyone, but there can be stipulated right of priority for the unit purchase.||A share is a security.Open subscription is prohibited.The shares allotment shall be registered with the relevant state body.|
|Accounting and Tax Compliance|
|Companies shall file accounting and tax reports with the tax authorities on a quarterly basis. Reports on VAT shall be filed every month.||There is almost no distinction between a Branch (or taxable RO) and Russian legal entity in terms of tax compliance.RO which carry out auxiliary and marketing activity also should submit reports on their activities and possible income and all reports related to payroll and social taxes. Reporting is generally done every quarter with|
Documents mentioned above require Consulate legalization or apostille with notarized translation to the Russian language.
It is important to point out that there are several special zones that offer tax incentives for companies that want to establish themselves in these special zones, as well as in the Manaus Free Trade Zone in Brazil
In the Russian context, these 4 special zones are divided into:
Industrial and production zones;
Technology and innovation zones;
Tourist and recreational zones;
Presentation of the frees zones, you may click here.