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Accreditation of Branch Offices or Representative Offices of a Foreign Legal Entity for the Purposes of Deoffshorization

posted 8 years ago

The main measures and important practical
aspects to be addressed when representative offices of foreign legal entities
are established and opened in the Russian Federation.

Due to the current
deoffshorization process, it has become necessary to address some issues
related to the economic activity of foreign companies through a branch or
representative office. In accordance with the Tax Code of the Russian
Federation, a foreign organization with a permanent residence in a foreign
country which operates in Russia through a separate subdivision is entitled to
be recognized as a tax resident of the Russian Federation. In this case, such a
foreign organization is not recognized as a controlled foreign company in
accordance with article 25.13 of the Tax Code of the Russian Federation.

We are going to discuss the major measures and some important practical aspects
to be addressed in respect of the establishment/opening of branches or
representative offices of foreign legal entities in the Russian Federation.

 1. The decision on the
establishment/opening of a branch or representative office of foreign legal
entity in the Russian Federation

A branch/representative office of a foreign legal entity are established,
opened, and cease to operate in the Russian Federation on the basis of a
decision of such foreign legal entity.

It must be borne in mind that this decision, as well as other documents
required for accreditation, must be submitted in Russian or in a foreign
language with a translation into Russian language, and certified in the manner
prescribed by the legislation of the Russian Federation.

In addition, the decision on the establishment/opening of a
branch/representative office of a foreign legal entity in the Russian
Federation requires consular legalization or apostilling.

 2. Certification of the number of
foreign workers of the branch office or representative office in Chamber of
Commerce and Industry (CCI) of the Russian Federation. 

The CCI of the Russian Federation provides personal accreditation to foreign
citizens who are employees of branches/representative offices of foreign legal
entities.

The authorities may refuse to accredit a branch/representative office of a
foreign legal entity if it failed to submit the necessary documents, or in case
of misrepresentation of some information found inthe documents, or if the
purpose of the establishment/opening of a branch/representative office of the
foreign legal entity are contrary to the Constitution of the Russian
Federation, international treaties concluded by the Russian Federation, and/or
the laws of the Russian Federation, or pose a threat to the sovereignty,
political independence, territorial integrity and national interests of the
country.

A branch/representative office of a foreign legal entity may invite foreign
nationals to be employed, and such foreign nationals have to undergo
accreditation. The number of employees shall comply with the details included
in the state register of accredited branches/representative offices of foreign
legal entities.

CCI of the Russian Federation also provides assistance in the issuance of
documents for the entry to and staying in the Russian Federation of foreign
citizens who are employees of a branch/representative office of a foreign legal
entity, family members of such employees, and employees of foreign legal
entities, and their family members (except for the foreign citizens who are
employees of representative offices of foreign banking institutions).

 3. Accreditation of a Foreign Branch
Office or Representative Office with the Authorized Tax Authority

The proof of the accreditation of a branch or a representative office of
foreign legal entity is a document issued by the authorized federal executive
body that the corresponding entry was made in the register.

Within twelve months after the adoption of the decision on the
establishment/opening of a branch/representative office in the Russian
Federation, a foreign legal entity shall submit an application to a competent
tax authority for the accreditation of the branch/ representative office of the
foreign legal entity, in the form approved by the Order of the FTS of Russia
dated 26.12.2014 No. MMB-7-14/681@, accompanied by the documents for
accreditation of a foreign branch/representative office.

Accreditation of foreign branch/representative office is carried out by a
competent tax authority within twenty-five working days from the date of the
submission of the documents to the tax authority, and within five working days
from the date when the entry is made in the register, the certificate of
registration in the State Register of accredited branches/representative
offices of foreign legal entities shall be issued, accompanied with the
information sheet on the record made to the State Register of accredited
branches/representative offices of foreign legal entities.

A state fee in the amount of 120,000 rubles has to be paid for accreditation of
each branch or representative office of a foreign entity.

Documents for accreditation of a foreign branch/representation shall be
submitted to the competent tax authority by the applicant in person or through
a representative, or may be sent by mail with advice of delivery.

 4. Registration of a Foreign Branch
Office or Representative Office with the Tax Authority and the Extrabudgetary
Funds

In accordance with clause 10 of Article 21 of the Federal Law dated July 9,
1999, No. 160-FZ “On Foreign Investments in the Russian
Federation,”  the competent tax
authority shall, within three working days, 
send information in the electronic form relating to the accreditation to
the company, amendments made to the information contained in the register,
termination of the accreditation of a branch/representative office of the
foreign legal entity, to the State extrabudgetary funds for registration or
deregistration of the branch/representative office of such foreign legal entity
as the insuring party. 

In accordance with Article 83, clause 4 of the Tax Code of the Russian
Federation, a foreign organization shall effect its registration
(deregistration) with the tax authority 
in the area of its operation in the Russian Federation through the
accredited branch/ representative office on the basis of the information
contained in the public registry of accredited branches/representative offices
of foreign legal entities. Therefore, the taxpayer is not obliged to submit
information for the registration of the branch/representative office of a
foreign legal entity with the tax authorities or with the state extra-budgetary
funds, or to register as an insuring party in respect of accredited branches/
representative offices of foreign legal entities.

At the same time, we recommend companies to contact their local tax authority
and the departments of extra-budgetary funds after accreditation to receive the
corresponding registration certificates.

 5. Employing personnel to a branch
office or a representative of a foreign company

In accordance with the Federal Law “Concerning the Legal Status of Foreign
Citizens in the Russian Federation” of 25.07.2002 No. 115-FZ, the term
“foreign employees” refers to foreign nationals temporarily residing
in the Russian Federation and working on the basis of an employment contract or
a civil law contract for the performance of work (provision of services).

The employer and the customer who orders works/services have the right to
employ foreign workers if they have a permit for the employment of foreign
labour force, and a foreign citizen is entitled to work if he/she is eighteen
or older and has a work permit or a patent for working in the Russian
Federation.

Thus, according to the general rule, companies may employ foreign nationals to
work under an employment contract or a civil law contract for the provision of
services in the Russian Federation provided the companies obtain permit to
employ foreign workers and the foreign nationals obtain their personal work
permit (or patent).

An exception is made for the accredited employees of representative offices of
foreign legal entities from the countries which have concluded international
treaties to which the Russian Federation is a party. Such employees may work
without work permits subject to the compliance with certain requirements. Such
international treaties are concluded, for example, with the member countries of
the Eurasian Economic Union. Foreign employees of branches or representative
offices who have a visa-free entry to the Russian Federation have to obtain a
patent (work permit) for working in the country.

After registration, a branch/representative office will have the right to issue
invitations and obtain visas for their personnel on the basis of the work
permits issued for their employees, for periods specified in such permits,
without applying to the CCI of the Russian Federation.

It must be borne in mind that the establishment of a branch or representation
is not the only way to operate in the Russian Federation. In each case, the
choice of the legal form for the activities of a foreign legal entity in the
Russian Federation must be addressed with due account of the specific tasks and
objectives of the business. IPT Group has experience of successful cooperation
with foreign investors, which allows it to take into account the specifics of
the activity of every investor in the Russian Federation.

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