Foreign companies can extend their presence to Russia through a representative or a branch office without dealing with a Russian agent or setting-up a subsidiary entity. These two entities are considered branch offices of the foreign parent company and, therefore, do not have a separate legal personality from the latter and are not resident entities in the territory of the Russian Federation.
A branch may perform all functions including representation as well as commercial functions of the parent company. It is generally subject to income tax at the same rates as local companies. The branch is established by giving a Russian citizen or a foreigner with a regular work permit a power of attorney to represent the foreign entrepreneur or company in the country. The branch must be registered with the local tax inspectorate.
The representative office can operate fiscally in the country but only for representation purposes, therefore it cannot take part in any commercial negotiation and issue sales invoices. It must be registered with the Russian Chamber of Commerce and registered with the local Tax Inspectorate. Funding for the management of the Office must be made, solely by the foreign company, by means of a foreign bank transfer. Economic compensation paid to the staff of the representative office is taxable in Russia.
The representative office or branch can operate with the bank accounts of the parent company and therefore can receive and make payments both in rubles and in other currencies within the scope of negotiations concluded in the name of the parent company. In addition, if duly accredited, the branch or representative office is exempt from VAT on rental payments for flats or offices.
Profit subject to taxation may be reduced by expenses incurred abroad, if any, which are directly related to the operation in the territory of the Russian Federation of the representative office or branch.
The representative office or branch cannot import or export goods for commercial purposes. However, they may entrust an import-export agent or a customs agent with the import or export of goods, the recipient of which must in any event be a Russian company. In all business conducted by the representative office or branch, the parent company acts as contracting party.