1. Authors: Jon Hellevig, Anton Kabakov, and Artem Usov.
Jon Hellevig, Managing partner of Awara Group Anton Kabakov, Partner of Awara Group Artem Usov, Partner of Awara Group
LinkedIn: http://www.linkedin.com/in/jonhellevig LinkedIn: http://ru.linkedin.com/pub/anton- LinkedIn: http://www.linkedin.com/in/artemusov
Facebook: http://www.facebook.com/jonhellevig kabakov/31/b21/200 E-mail: artem.usov@awaragroup.com
E-mail: jon.hellevig@awaragroup.com E-mail: anton.kabakov@awaragroup.com Website: www.awaragroup.com
Website: www.awaragroup.com Website: www.awaragroup.com
This blog post represents an updated excerpt from the soon to be published Awara Russian Tax Guide.
Authors: Jon Hellevig, Anton Kabakov, and Artem Usov.
Publishing date: 31.10.2012, considering the Russian tax laws in force at the date and case law up to date.
TAX REGISTRATION (INCORPORATIONS) AND REGIONAL REGISTRATION OF
SUBDIVISIONS IN RUSSIA
All legal entities and individual entrepreneurs that intend to engage in business activities must register
with the tax authority. In Russia the tax authority keeps the trade register and is thus the primary
registration organ also for incorporation of legal entities. The filing for incorporation and tax registration
is done simultaneously. (Representative Offices and Branches of foreign legal entities are registered with
the State Registration Chamber with subsequent tax registration). Also foreign legal entities may have to
register in Russia providing their activities in Russia meet certain threshold criteria (more about this
“simple tax registration” below).
In Russia business entities do not undergo separate registrations for the purpose of various types of taxes,
such as profit tax or VAT, rather an entity is immediately recorded in the system of all taxes with the
single registration. But in addition to the tax registration companies also need to register with the social,
medical and pension funds, and the state statistics agency.
The Tax Code sets the general rules for tax registration (articles 83, 84) and the provisions of
incorporation are in the Law “On State Registration of Legal Entities and Individual Entrepreneurs” (Law
N 129-ФЗ of 08.08.2001). There are also special rules for tax registration certain activities even when the
activities do not constitute a separate entity or just consist of a virtual subdivision as defined by the law.
This kind of registration will be dealt with more in detail below under the heading Simple Tax
Registration and Regional Tax Registration.
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

2. A foreign legal entity (“FLE”) may choose to do business in Russia in one of several forms depending on
the level of engagement of the company in Russia. The first option is to function only as an exporter
which does not under normal circumstances lead to any kind of taxable presence in Russia nor any
obligation to register with the Russian authorities. The involvement on the Russian market may be
increased without setting up a legal structure by the following steps:
• Keeping stock on the territory of the Customs Union under a procedure of customs warehouse. (There
will be no Russian presence for the FLE if a Russian customer is the actual importer).
• Using an Agent. If the Agent is an independent party and has the tax status of an independent agent,
then this creates no Russian presence for the FLE. If the Agent is related (or non-independent), then
the FLE runs the risks of creating itself a taxable presence in Russia in the form of a permanent
establishment (see below).
Next in line for organizing Russian presence is undertaking a so-called ‘simple tax registration’ which
have to be made if the operations of the foreign legal entity meet certain qualifying criteria. These are the
rules when a foreign legal entity has to register with the Russian tax authority without de facto setting up
any kind of entity or even not a representative office or branch. We will discuss the rules for simple tax
registration below together with the rules determining the obligation of a Russian legal entity to register
its presence in a location other than its home location.
A more established presence in Russia can be achieved by setting up a representative office (RO -
Russian “Predstavitelstvo”) or a branch office (Branch - Russian “Filial”). An RO and Branch are not
considered as Russian legal entities, rather they are determined as subdivisions of foreign firms for
representing their interests in Russia. (Therefore references to FLEs also concern ROs and Branches). As
long as they carry out merely representative, preparatory and auxiliary functions, they are not liable for
profit taxation in Russia. But as soon as the activities qualify more directly as actual business activities
then they may be liable for profit tax as so-called permanent establishments, a de facto business
operation. (For further details on this see chapter Permanent Establishment Hereby to note that strictly in
accordance with the Russian Civil Code it would not be permissible for an RO to transcend the limit of
representative functions, whereas a Branch may do it and engage in actual business operations. In practice
this means that a Branch has the right to invoice for business transactions in its own name and accept
payment to its own bank accounts. The tax authority, which plays a key role here, has so far waived this
provision and accepted ROs as commercial entities. A part from this, and slight differences in the
registration and accreditation procedures, there are no differences between the RO and Branch, for
example, what comes to the accounting and tax regulations.
A Representative Office or a Branch of a foreign company needs to be accredited with the State
Registration Chamber. Alternatively the accreditation may be done with the Russian main chamber of
commerce (Chamber of Commerce and Industry) or another authorized body depending on the industry,
for example, banks are accredited with the Central Bank. But when accreditation is not done with the
State Registration Chamber, then an additional registration has to be done with it, as it keeps the
consolidated register over all ROs and Branches
ROs and Branches shall also separately be registered with the tax authorities, the social funds, and
statistics agency.
In addition to what was said above a FLE may be taxed on its Russian income also without operating in
Russia. This is the case when the Russian rules on withholding tax, or source tax, becomes applicable (see
chapter Profit Tax for details).
A way to limit the Russian presence while being actively engaged in Russian business is to enter into a
joint activity agreement (JAA) with a Russian entity (sometimes referred to as simple partnership). The
Russian Civil Code (art. 1041-1054) provides for this form of co-operation, and provisions regarding a
JAA are also in the Tax Code (art. 174.1, 180, 278). A JAA is basically a profit sharing arrangement
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

3. where the foreign party contributes funds, property and know-how, and the Russian party usually
manages the business according to the agreement between the parties. Based on the circumstances at
hand, a JAA may or may not be deemed to form a Permanent Establishment. The JAA is taxed at the
level of its participants with the exception of the Value Added Tax (art. 174.1) and Excise Tax (art.180,
Tax Code). The Russian partner, who is the managing partner, has the obligation of accounting by
keeping separate books for the JAA and filing the Tax Returns. Income from the JAA is subject to
Russian withholding tax. Hereby, an applicable Tax Treaty may provide relief.
A special form of joint activity is the investment partnership based on a new law of January 1, 2012 (Law
No. 335-ФЗ "On Investment Partnerships" of 28.11.2011). The investment partnership is mainly intended
for attracting private equity and venture capital to innovative businesses. The investment partnership does
not constitute a legal entity.
Russian subsidiary company
Finally the foreign investor may take the full step into Russian business by investing in a wholly or
partially owned subsidiary. (When the shareholding of the local entity is divided between one or more
Russian, or foreign, companies, then people often refer to the local entity as a ‘joint venture.’ But there is
in fact no special legal form of ‘joint venture’ – the actual legal form of such a firm is any of the
permissible legal forms by Russian law).
The two most popular forms of corporate legal entities in Russia are the limited liability company (LLC,
Russian “OOO”) and the joint stock companies (”JSC”). According to present law a joint stock company
can be registered either in the form of a Closed Stock Company (Russian “ZAO”) or an open stock
company (Russian “OAO”). Publicly traded companies are registered as OAO. However, according to a
published project of amendment of the Civil Code,the OAO and ZAO distinction would be abolished and
and both forms would be qualified just as stock companies, but there would be a new distinction between
public and non-public corporations. Corporations, the shares of which are publicly issued or traded would
qualify as public corporations. And it is by this factual criterion that such companies would be subject to
more severe governance and disclosure provisions. Other stock companies and OOO companies would
qualify as non-public corporations.
There are no differences in the tax treatment of the various forms of legal entities, but other issues might
affect the choice of legal form.
Other possible types of legal entities are:
- Full partnership
- Limited partnership
- Production cooperative
A full partnership (“polnoe tovarischestvo”) is a commercial organization, the members of which
(partners) according to the concluded agreement carry out business activities on behalf of the partnership
and have personal responsibility for its liabilities. General partnerships operate under constitutive
agreements, which are signed by all members of the partnership.
A limited partnership (“tovarischestvo na vere” ) is a commercial organization in which there are partners
and limited partners. Limited partners are investors who bear risk of losses up to the amount of their
investments and do not participate in the business activities of the partnership.
Partnerships are generally not very popular in Russia and are usually used only for conducting limited set
of activities such as legal services, audit assurance, etc.
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

4. Simple Tax Registration and Regional Tax Registration of Subdivisions
Russian legal entities and foreign firms which operate in various locations in Russia must under certain
conditions undertake separate tax registration at the other locations. Under Russian law such regional
presence may qualify as a so-called subdivision even in the case when the firm itself would not consider
that the remote operations would amount to a “subdivision.” Different rules apply in relation to
subdivisions of foreign legal entities. FLE’s that set up Russian presence without registering a Russian
legal entity e.g. OOO or ZAO may register a representative office or branch or alternatively merely make
a tax registration without forming any kind of entity. We refer to this kind of tax registration as simple tax
registration.
There is a duty to undertake the simple tax registration when the legal criteria are met, and it is thus not
left to the discretion of the company to decide whether to register or not. The obligation to register does
not per se entail the obligation to pay taxes. Not all companies that register must pay taxes, but all
companies present are subject to registration. Registration itself will not create a taxable status of a
permanent establishment. If the foreign firm intends to be active at multiple locations in Russia, then it is
preferable that it establishes its main Russian presence through a legal entity for it is much easier to
comply with the regional registration requirements through a Russian legal entity as opposed to doing it
as a FLE. A FLE would have to go through the same procedures for making tax registration at each
location, requiring among other things to ensure all the corporate decisions and receive all the original
documents from the foreign head office each time separately.
This form of registration is also referred to as Simple Tax Registration. The Tax Code (article 11) defines
subdivisions as follows: “For tax registration purposes, a subdivision is any territorially separate
subdivision of an organization with permanent workplaces. A workplace is deemed permanent if set up
for more than one month.” In other words, as far as subdivisions are concerned, the decisive criterion is
not whether a company intended to establish a separate organizational structure, but their existence is
determined by factual circumstances. It is therefore sufficient for a company subdivision to be established
to have at least one person working permanently in a separate Russian location.
The obligation to comply with Simple Tax Registration fulfills a control function. The process is
therefore more like filing information than applying for the establishment of an entity, while the activities
(or presence) may occur before filing for registration.
Tax registration is performed in accordance with article 83 of the Tax Code. By this article the Ministry
of Finance is delegated powers to set further details for registration of regional presence of Russian
entities (Order No. 114н of 05.11.2009) and the presence of foreign entities of 30.09.2010 No. 117н).
Russian legal entities are required to undertake regional tax registration under the following
circumstances:
1. When remote work of employees qualifies as a “subdivision”
The Tax Code (article 11) defines a subdivision as any territorially separate subdivision of an
organization with permanent workplaces A workplace is deemed permanent if set up for more than one
month. In other words, as far as a subdivision is concerned, the decisive criterion is not whether a
company intended to establish a separate organizational structure, rather the existence of such is is
determined by factual circumstances.
It is a sufficient condition for meeting the criteria triggering the registration obligation that one person is
hired under the given circumstances to work remotely for the company
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

5. The registration application has to be filed within one month from meeting the criteria of registering the
presence as a subdivision.
2. Registration of real estate, other immovable property, and means of transportation
A taxpayer (corporation and individual) holding title to real estate must register for this purpose with the
local tax office. Under Russian law sea and river vessels as well as aircraft is considered immovable
property and is also subject to this kind of registration.
Other means of transport, such as cars, also need to be registered at the location of their home base.
Although the law refers this obligation to the party holding title to the car, the tax office has issued
instructions requiring that a leased car also be registered at the local tax office.
The registration requirements for foreign legal entities are as follows:
1. Remote work of employees qualify as a “subdivision”
The main conditions for this registration requirement are similar to those for Russian legal entities as per
above.
2. Registration of real estate, other immovable property, and means of transportation
The main conditions for this registration requirement are similar to those for Russian legal entities as per
above.
3. Registration in the capacity of taxpayer for mineral’s extraction tax
4. Opening of a bank account
Foreign legal entities must register with the local tax office of the bank in connection with opening of a
ruble or foreign currency denominated bank account.
5. Operating a taxable permanent establishment through a dependent agent
If the activity of the organization or individual in accordance with Russian laws and double taxation
treaties forms a permanent establishment of a foreign organization, then the foreign legal entity must
register with the local tax office.
6. When a foreign company exports products that have been produced in Russia under tolling
arrangements (and other forms of processing)
Accounting and Taxation of Subdivisions
Branches and representative offices (or other subdivisions) of foreign companies may waive the
requirement to keep statutory financial accounting (bookkeeping) books as long as they follow the tax
accounting rules prescribed by the Russian Tax Code (keeping of all the necessary tax ledgers for each
type of tax applicable to the entity’s business). Regional ROs and branches of Russian legal entities, as
well as other subdivisions (those under “simple tax registration”), both of Russian and foreign legal
entities) do not have to do separate accounting (they do not need to run a separate accounting balance).
However if the business operations amount to a taxable permanent establishment, then full accounting is
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

6. required.
We will briefly outline the special issues that concern taxation of subdivisions.
1. Profit tax
A subdivision files profit tax returns and pays the tax at the local tax office. The amount of tax due to be
paid locally is calculated in proportion of the arithmetical mean of the payroll cost of the subdivision to
the total payroll cost of the company and the value of fixed assets of the subdivision to the total value of
the fixed assets of the company (art. 288).
2. Property tax
In case that the subdivision does not run a separate accounting balance, the property tax is paid only at the
location of the head office (art. 384).
3. Employer’s social contributions
A company does not have to separately pay social contributions at the location of its subdivision if the
following conditions are met in regards to the subdivision: (i) it does not run its separate accounting
balance; (ii) it does not have its separate bank account, and; (iii) the salaries of the employees are paid at
the head office (art. 15.11 Law N 212-FZ of 24.07.2009 "On insurance contributions”).
A foreign organization does not need to pay employer’s social contributions when it does not pay salaries
in Russia and does not have a bank account and separate balance in Russia.
4. Personal income tax
Personal income tax has to be submitted to the tax office at the location of the subdivision. The tax is
declared to the tax offices both of the head office and subdivision (art. 226.7; 230.2).
A subdivision of a foreign legal has to perform the withholding of tax in case it has a subdivision in
Russia and an employee is remunerated for work in relation to such a subdivision. also has this obligation
(art. 226.1).
Taxpayer’s Identification Number
At initial registration the with the tax office, taxpayers, both legal entities and individuals, receive a
taxpayer’s identification number (INN). The INN is a universal identification number for all types of
taxes and duties. The INN should be indicated in all correspondence with the tax authority such as tax
returns, statements, applications and other submissions to the tax authority.
Obligation to Keep the Tax Inspectorate Informed
The taxpayer has an obligation to keep the tax office informed about legally determined matters that may
affect compliance with tax law (art. 23). Some of these are presented in below table.
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM

7. Changes to be Reported Time Limits
Opening and closure of bank accounts Within seven days
Acquisitions of shares or other ownership in another Within one month
business entity
Setting up, reorganization or liquidation of a regional Within one month
subdivision
Reorganization or liquidation of a legal entity Within three days
If you want to discuss this article, please contact the authors:
Jon Hellevig, Managing partner of Awara Group
Facebook: http://www.facebook.com/jonhellevig
LinkedIn: http://www.linkedin.com/in/jonhellevig
E-mail: jon.hellevig@awaragroup.com
Anton Kabakov, Partner of Awara Group
LinkedIn: http://ru.linkedin.com/pub/anton-kabakov/31/b21/200
E-mail: anton.kabakov@awaragroup.com
Artem Usov, Partner of Awara Group
LinkedIn: http://www.linkedin.com/in/artemusov
E-mail: artem.usov@awaragroup.com
MOSCOW, ST.PETERSBURG, TVER, YEKATERINBURG, KYIV, HELSINKI
WWW.AWARAGROUP.COM
WWW.HKUPARTNERS.COM