Mergers & Acquisitions No.3 (94) 2011
For doing business in Russia the foreign company have to go through the specific procedure.
Accreditation includes the following stages:
- Obtaining permission for the accreditation (only for representative offices);
- obtaining certificate of registration in the register of accredited companies;
- tax registration with obtaining a respective certificate, provision a seal for the company;
- obtaining an information letter from the Federal State Statistic service;
- registration in the Social Insurance Fund;
- registration in the Health Insurance Fund;
- registration in the Pension Fund.
The term “accreditation” could be used narrowly (obtaining a permission for accreditation (for representative offices) and certificate of registration or the certificate only - for the branches) and in general sense (going through all the stages, including the registration in off-budget funds).
According to author, it’s correctly to use the term in extended interpretation, since only going through all the necessary stages the foreign companies could do business in Russia fully.
Accreditation of the representative offices, branches of the foreign companies is a number of legal actions for legalization of the foreign company in Russia, acting through representative office/branch and including state registration of such subdivisions and registration in tax authorities and respective off-budget funds.
Obtaining permission for accreditation and certificate of registration.
Legal regulation
The establishment and operation of the representative office of the foreign company is ruled by the Order of the Ministry of the USSR No. 1074 dd. 30 November, 1989 “On approval of the Regulation on opening and operation of the representative offices of the foreign companies, banks and organizations in the USSR”(hereinafter - Order No. 1074)
There is no legal definition for term “representative of the foreign company” in the Order though there are the following purposes for its establishment:
- effective promotion for performance of the agreements on mutual cooperation;
- exchange of economical, commercial and technical information;
- development of the commercial communications;
- enforcement for commercial and other transactions;
- development of export;
- familiarization with the latest achievements in the world industry;
- import of the machines and equipment and their maintenance.
The Order No. 1074 is still in force though the definitions turned old. Moreover, the term “foreign companies” disorients the foreign investors since they see no difference with the term “the company” which is not legal entity under the law of country of incorporation. The accreditation is possible for divisions of the foreign companies only.
Regulation of the activity of the branches of the foreign companies is more detailed. The following laws are in force: the Federal law “On the foreign investments in the Russian Federation” No. 160-FZ, Temporary Provision “On the order of accreditation of the branches of the foreign companies, established on the territory of the Russian Federation” (approved by the Ministry of Justice on 31 December, 1999, hereinafter- the Temporary Provision).
The legislator for some reason didn’t include the representative offices of the foreign companies into the list of the foreign investors. By this the legislator deprived these formations of respective rights, guarantees and benefits under Russian law, international legislation and opportunity for diplomatic protection from the countries of incorporation. All this in turn makes a ground for reduction of investment attraction of the Russian market from the legal point of view.
The Regulation of the Government No. 1419 dd. 21 December 1999 the State Registration Chamber of the Ministry of Justice of the Russian Federation is the authorized body for accreditation of the divisions of the foreign companies (hereinafter- the SRC).
The formal accreditation procedure is made according to the Ruling of the accreditation in the Chamber.
Moreover, the Chamber of Commerce and Industry of the Russian Federation provides a permission for accreditation of the representative office, though the SRC provides the registration in the register of the accredited representative offices and issuing a certificate.
According the Ruling No. 1074 the representative office is being opened upon issuing permission. From the first sight we may count that both authorities are equal by their functions- they “accredit” the representative offices
However the accreditation through the Chamber of Commerce and Industry is not enough.
For complete legal functioning it is necessary to have a certificate of registration.
Moreover, art. 9 of the Order No. 1074 has a clause that permission loses its validity if the representative office has not been “opened” within 6 months upon the issuance of the certificate. According to author, the registration in the register of the accredited representative offices confirms the fact of being opened, i.e. the start of its operation. This article will describe the procedure of accreditation through SRC only.
Documents for registration
1. Written application with request to open the representative office/the branch of the foreign company in Russia.
This application is signed by the head of office or other authorized person. Please give the details of the respective power of attorney (issue date, number of apostil).
In application you should set the following:
- name of the foreign company;
- date of registration in the country of incorporation;
- the place of registration of the foreign company;
- the main activity of the foreign company;
- the purpose for establishment of the division of the foreign company and the term of activity;
- information on business cooperation with the Russian partners and opportunities for further cooperation
2. Extract from the Commercial/Trade register of country of incorporation of the foreign company or other document confirming the fact of registration in accordance with respective legislation. In English-speaking countries it’s a certificate of incorporation.
3. Articles of incorporation (memorandum of association) of the foreign company.
Some countries’ legislation does not provide any Articles of association (memorandum of association), therefore the package of the documents confirming the fact of registration of the foreign company and information regarding
- date of its registration;
- place of registration;
- names of the founders and percentage of shares;
- information regarding the person authorized to take decisions re opening of the division
- are accepted
4. Resolution of the foreign company on opening the representative office/branch in the Russian Federation.
As a rule, resolution specifies the name of the division, name of its head and location. The last provision is mandatory since Russian legislation has no maximum amount for divisions of the foreign companies.
5. Original and notarized copy of the Regulation on the representative office/branch of the foreign company in Russia.
When drafting the Regulation, please pay attention to the following:
There are some requirements for Regulation in p. 2 of the art. 22 of the law “On foreign investments in the Russian Federation” No 160-FZ, namely:
- name of the branch or its parent company;
- the form of incorporation of the parent company;
- location of the branch in the territory of Russia;
- legal address of the parent company;
- purpose of establishment of the branch;
- types of activity of the branch;
- composition, volume and period for capital investment in the assets of the branch;
- the management of the branch.
Moreover, the Regulation may contain other provisions regarding its activity which should comply with the laws of the Russian Federation.
The Law contains no requirements to the Regulations of the representative office.
The Order No. 1074 has no regulations in this respect either. We believe the analogy by law should be applied in this case.
6. Bank reference letter confirming financial solvency of the foreign company.
As a rule, the letter is made on the blank of the bank and has information regarding the financial solvency of the foreign company. The letter is informational in nature and cannot be regarded as bank guarantee.
7. Letters of recommendation from two Russian business partners.
Minimum two letters should be provided in free form on blanks of the firms signed by the directors and sealed. The content gives information regarding the type and term of the partner relationships.
8. Copy of the general power of attorney certified by notary giving the powers to the head of the representative office/branch.
Please pay attention to this power of attorney and specify the powers on managing the division. The powers of attorney sometimes are invalid due to lack of some specific provisions. Thus, in the POA the name of the authority where the head may represent its division should be named, otherwise no interaction is possible.
There are the following list of the authorities:
State Registration Chamber of the Ministry of Justice of the Russian Federation, tax authorities, departments of Fund of Social insurance, Fund of medical insurance, Pension Fund, Statistic authority and also banks (if applicable)
9. In case no head but other authorized person made application for accreditation, the power of attorney issued to him should be certified by notary.
10. The document confirming legal address of the representative office/the branch of the foreign company in Russia.
This is the letter of guarantee from the landlord confirming the intent to enter into the lease agreement after the accreditation and copy of certificate of ownership of the landlord. In case of sublease the Lease agreement and written consent of the landlord for the lease should be provided.
11. Card information on representative office of the foreign company.
This card contains main details and contacts of the foreign company and the division as well, made in 2 copies and signed by authorized person with indicating the date of the power of attorney.
The document confirming the payment of fee for SRC services should also be attached. After all documents submitted the authorized person is provided with the list with the case number and code of access to on-line check for accreditation procedure.
The state fee for accreditation
The law considers accreditation as foreign economic relations and the government is liable for them.
The Tax code of the Russian Federation includes all fees in Russia. P. 6 of art. 12 of the Tax Code provides no federal, regional or municipal taxes could be set except for those provided by the Tax Code of Russia.
According to pp.5 p.1 of art. 333.33 of the Tax Code the accreditation fee for each branch is 120 000 rubles (approx. 3 000 euro).
No state fee for representative office is provided.
There are some fees for services of the SRC. Some of them provided in the Order of SRC No 33/ob dd. 31 December, 1999 (tariffs for certificate of accreditation of the branch 500, 1000, 1500 and 2 000 USD for 1, 2, 3 and 5 years respectively).
Currently these fees are paid in rubles and equal to 15.000, 30.000, 45.000 and 60 000 rubles.
That is the question: if the tariffs are changed (in rubles) why we cannot find the order regarding these changes in open access?
The tariffs for certificate of accreditation are 30 000 rubles, 60 000 rubles and 75 000 rubles for 1, 2 and 3 years respectively.
The Order has no information regarding these tariffs, the accountants of the SRC issue invoices only based on the list of submitted documents.
RCS does not provide open access regarding the tariff documents
It should be noted that the federal budget receives some part of paid tariffs.
For example, upon payment of 75 000 rubles for accreditation of the representative office for 3 years there are two different invoices: for 60 000 to be paid to SRC and 15 000 to be paid to the Federal budget.
So we have the following:
on accreditation of the representative office on payment the so-called accreditation tariff the state fee non provided by the Tax code should be paid. SRC sets its own tariffs for its services by by-laws, though the tariffs are regulated by the Tax Code.
The solution of this problem is in amending the Tax code, in particular, legalization of the tariffs. These tariffs should be transparent, accessible and located on SRC’s website.
Expertise of the documents in SRC
Upon submission the documents to the SRC the expertise of the documents takes 18 days and the following decision should be made by SRC: resolution on accreditation of the representative office/branch and registration in respective Register. The permission for opening a representative office is issued with certificate of registration.
The branch gets certificate of registration and Regulation of the branch with the mark of SRC.
Suspension or consideration the case.
According to art. 26 of the Ruling the suspension is possible in the following cases:
- documents made in improper form;
- information and documents not provided in full;
- information is unreliable;
- the lack of payment documents;
- request from the applicant to suspense the accreditation;
- court decision.
Upon elimination of the grounds for suspension the authority considers the documents within 3 business days.
Denial in accreditation
The Ruling contains no grounds for denial of neither representative office nor branches. P. 4 of the art. 21 of the Law “On foreign investments in the Russian Federation” says that denial in accreditation is possible for protection of the constitutional order, morals, health and defense of the country. Moreover, art. 22 of the Temporary Provision establishes the following grounds:
- no complete package of documents is provided;
- information relating to the foreign company is non-complete or unreliable;
- the activity of the foreign company is not in compliance with the Russian legislation.
Divisions of the foreign credit organizations
The practice for accreditation of the division of the foreign credit organizations differs. There are additional instance which is starting point for whole process, namely, the Central Bank of the Russian Federation (hereinafter – CB of the RF), in particular, Department for external relations.
The main function of the CB of the RF is issuance the permission for opening a division.
Regarding the representative office there is a Regulation on opening of the representative offices of the foreign credit organizations in the Russian Federation, approved by order of CB of the RF No.02-437 dd. 7 October, 1997 (hereinafter – Regulation No.02-437).
The definition for the representative office is the following: the division of the foreign credit organization established for study of the economical situation in bank field of Russia. The purpose of this study is the advising services to the clients, support and promotion of the contacts with the Russian credit organizations and development of the international cooperation.
This formation is not a legal entity by its nature, has no rights for conducting commercial activity (and all its expenses are covered by parent company) and acts on behalf of the credit organization named in the permission.
An interesting ground for denial in issuance of the permission set in p. b) p.10, art. 2 of the Ruling No. 02-437 is “in accordance with the decision of the Bank of Russia”.
Here is a question – if documents are provided and information is reliable, what is the reason for denial by the Central Bank?
There are no specific provisions regarding opening a branch of the foreign credit organizations.
The Law on banks and bank activity No. 395-I dd. 2 December, 1990 in p.18 if art. 1 provides that Russian credit organizations with foreign ownership and the branches of the foreign credit organizations could be established on the territory of Russia only within the quotes (limited share) of the foreign capital in bank system of Russia. This quote is set by the government under the agreement with the CB of the RF. This Law was amended in 1996, and the quotes should have been set by the federal law. In practice no federal Law was passed.
Tax registration
Tax registration could be made after SRC procedures or at the same time with going through them. Moscow Tax inspection No. 47 makes a registration for divisions of the foreign companies. Legal regulation is described in the Ruling on tax registration of the foreign companies, approved by the order of the Tax Ministry No. AP-3-06/124 dd. 7 April, 2000.
No fees are provided by the Tax code for tax registration.
The following package of documents shall be submitted to the tax authority:
- Application 2001-I (the application has the main data of the foreign company –names of the founders, legal address, bank details, information about the head of the division);
- The application is signed by the head of the division of authorized person with giving the details of the POA he is acting in accordance with.
- Extract from the Trade/Commercial register or certificate of incorporation or other document containing information of the authority registered the company, registration number, date and place of registration. The certified copies may also be provided. Whether no registration is required for the foreign companies, the legalized copies of the incorporate documents and other business documents should be provided.
- Document from the tax authority of the foreign country in the free format confirming tax registration with the official tax registration number.
- There could be a lot of problems with this document. The letter confirming the tax registration and tax code is sufficient.
- Resolution of the foreign company on establishment the division in Russia.
- The power of attorney issued by the foreign company to head of division or another authorized person.
- Upon tax registration the authority issues Certificate in accordance with the form 2401 IMD with tax identification number and taxpayer code. The term for consideration of the documents is 5 business days since in Civil law the term is starting on the next day from the submission, i.e. in fact the documents are received on the eighth day. You may call to the registration department to know the status of consideration of the documents.
- Information letter on codes of statistics, registration in off-budget funds (Social insurance fund, Health insurance fund, Pension fund).
Moscow state register located at Kirpichnaya, 33 is responsible for issuance of the codes. The following documents should be provided:
- resolution of parent company on establishment of the representative office,
- power of attorney for the head of the representative office;
- regulation on representative office;
- extract from the Commercial register;
- documents confirming legal address (copy of the lease agreement and certificate of ownership);
- letter of appointment of the chief accountant;
- certificate of state registration chamber;
- permission of the state registration chamber;
- tax certificate with tax identification number
- The power of attorney is mandatory. It should be mentioned that the head of the representative office is entitled to issue the POA be way of transfer.
The off-budget issues are governed by the following documents:
- Ruling of the Pension Fund No. 396 p. dd. 13 October, 2008 “On registration and removal from registration of the insurers paying to the individuals” for getting the notice of the insurer for the Pension Fund;
- The order of registration in the Social insurance Fund as insurers (approved by the Order of the Social insurance Fund No. 27 dd. 23 March, 2004 as amended on 26 January 2007) to get respective notice of registration;
- Ruling of the Government No. 570 dd. 19 September, 2005 “On approval of the Rules of registration of the insurers in the health insurance funds” (as amended on 8 December, 2008).
By analyzing these provisions the complete package of the documents is the following:
- application on registration;
- certificate of state registration chamber;
- tax certificate;
- information letter for Moscow statistic register;
- resolution of the foreign company on establishment of division;
- power of attorney in favour of the head of division;
- Regulation on representative office;
- extract from the Commercial register (or other document confirming the registration of parent company);
- documents confirming legal address of the division;
- letter of appointment of the chief accountant;
All documents are submitted in copies certified by notary; powers of attorney should be in original copy. Each fund has its form of application. You should provide the agreement of medical insurance (2 copies) and attachments (2 copies) to the Heath insurance fund.
The requirements to the foreign documents
Since all the documents submitted on the language of the country of incorporation of the foreign company, there are some requirements. First of all the legalization should be made. There are several types of legalization:
- Consular legalization made in accordance with Administrative regulation approved by the order of the Ministry of foreign affairs No. 6093 dd. 26 May, 2008;
- Apostil made in accordance with the Hague Convention 1961.
The Russian Federation is one of the parties of the mutual international cooperation and the documents duly certified do not require additional certification in Russia.
The following agreement could be the examples:
- art.13 of the Convention on Legal Assistance and Conflicts of Law in Matters of Civil, Family and Criminal Law (The Minsk Convention) of 22 January 1993, as amended 28 March 1997;
- art. 43 of the Agreement between the USSR and Yemen on legal assistance (Moscow, 16 December 1985);
- art. 29 of the Agreement between Russian and China on legal assistance (Beijing, 19 June 1992);
- art. 15 of the Agreement between USSR and Yugoslavia on legal assistance (Moscow, 24 February 1962);
- art. 14 of the Agreement between USSR and Vietnam on legal assistance (Moscow, 15 July, 1958 as amended 19 October 1971);
- art. 11 of the Agreement between the USSR and Finland on legal assistance (Helsinki, 11 August 1978) and others.
The second requirement is the translation of the documents certified by notary or consular.
The correct translation of the name, place of registration of the parent company and authorized persons is essential; otherwise there is a risk to have different ways of writing leading to subsequent expenses to translation and certification. Therefore you should advise with the translator beforehand.
Moreover, there is a problem with transliteration of the name of the company. In fact the form of incorporation repeats twice in the name.
Unfortunately, the name of the company shall be indicated as is in tax certificates depending on form of incorporation (GmbH, S.p.A, AG,BV, etc)
All documents confirming the accreditation should have the only way of writing the name of the foreign company which leads to doubling them from on incorporation in the documents.
The third requirement is the proper execution of the documents. In case the documents have 3 or more pages, they should be sewed, numbered and sealed by issuing authority.
In practice if the documents are stapled (even twice in some cases), this is obviously the reason for suspension of consideration the documents.
There are documents with seals not on the last page and it leads to doubts of the accreditation authority in reliability of the documents. To exclude all possible misunderstandings please pay attention to all requirements.
In case requirements are not met, you could request the written explanation to minimize the risks of suspension.
The forth requirement – the term of validity of the documents. Most foreign documents are valid within 1 year upon issuance, such as Extract from the Commercial register, articles of association (memorandum of association).
Bank reference letter is valid within 6 months upon signing.
The Powers of attorney are valid within the terms indicated in the POA or, if the period is not specified, in accordance with the laws of the country of incorporation. Tax certificate is valid within 3 months.