A branch of a foreign organization is a separate subdivision of a legal entity located outside its location and performing all or part of its functions. The main legal act that regulates the activities of branches in Russia is Federal Law No. 160-FZ “On Foreign Investment in Russia” dated 09.07.1999.

Head and employees:

  • Only an individual can be the head of a branch;
  • The number of employees is not limited (foreign employees, including the head of the branch, must obtain a work permit, with a few exceptions).

Authorized activity:

A branch of a foreign legal entity may conduct business activities in full in Russia, in particular, a branch may:

  • participate in customs relations (import and export of goods into the Russian Federation);
  • enter into commercial contracts in the Russian Federation;
  • conduct any activity that does not require special permits/licenses and is not regulated by separate laws.

Taxation (basic taxes)

  • Profit tax is 20%
  • VAT is 20%
  • Taxation of employee income is 13% or 30% (residents and non-residents of the Russian Federation, accordingly);
  • Payment of mandatory insurance payments for employees is 32% of salary on average.

IMPORTANT: There are no significant tax reliefs (in particular, simplified taxation system cannot be applied).

Reporting

A branch has the right not to keep accounting (financial) records if it keeps full tax records and submits tax returns. Tax returns and mandatory insurance settlements are filed in the same manner as for ordinary Russian OOOs (see above). It may also be necessary to execute other tax and accounting reports (for the statistical accounting authorities, reports on average number of employees, reports on property and other taxes). No mandatory audit is conducted.

Cross-border payments and foreign exchange control

The movement of funds from the foreign parent company to the branch and back is not actually regulated (currency control formally exists, but its level is much lower than in the case of an OOO). This certainly makes this form very attractive for cross-border operations. However, for any Russian counterparties, the branch will be a non-resident, which means that they are obliged to register contracts and/or undergo currency control (extremely inconvenient for trading within Russia).

A branch can also:

  • open accounts in rubles and foreign currency in Russia and abroad, it is not obliged to report on its foreign accounts outside Russia;
  • carry out foreign exchange (non-ruble) transactions with non-residents and with Russian companies.

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