Startup: representative office or local limited company?
Right answer depends on many things. In our practice we had experience when headquarter started with representation and then set up also limited company in Russia. Good planning of activity, taxes, staff management - is the key thing here. We can advise to choose right way after we acquaint your requirements and needs.
Money transfers from/to russian banks
Very frequent mistake is when foreign management (or accounting/financial departments) think that they can transfer funds without consequences as they usually do in the headquarters mother country. Local russian bank legislation is very strict. Especially regarding the currency transactions. For example there could be significant penalties if russian firm receives funds from abroad and then doesn't provide the bank with complete documents package timely. Moreover, currency transfers between russian corporations are restricted. There are also many minor or very important things which businesses have to pay attention to. Thus, we advise to ask your legal advisor/accountant before you make a step and transfer funds!
Choosing the "right" Bank
This often rely on subsidiary's requirements - management follows headquarter instructions and choose from famous banks. Generally, this is right policy, but offten - it can be a big mistake. Point is this decision often relies on fears and ignorance of the russian market. It's important to remember, that even the bank operates under famous brand, all banks in russia are russian banks, as they have to follow russian legislation. And each bank sets its own rules, list of services and tariffs for the customers, which, as a rule, significantly differ from the same brand bank in headquarter's country and customers expectations. The "right" bank must be able: - to provide good electronic account management without having to "double" requirements and provide it also with paper documents; - do not make "surprizes" for customers, when they have to urgently provide some original documents, which can be very inconvenient if company's Director (General Manager or CEO) or Head of Office is abroad; - offer adequate tariffs and pricing policy; - bank's client-bank system must be able to provide "restricted" accounts for limited operations; and many more... Reliability is important criteria, but since we calculate and help to plan amounts to be transferred from headquarter, mostly bank account remains are minimal or even zero. Thus, we minimize the risks.
Do not miss the time limits to notify tax authority about opening of the Bank account
There are penalties stipulated for non- or late notify of the tax authority.
Ignoring the migration legislation
Even one salary paid to foreign citizens may lead to significant (up to USD 20k for each employee) penalties and measures against company itself and/or its Director. In the worst case representative office's accreditation could be suspended or canceled, the employee could be deported, and even criminal case against the management can be triggered. Obtaining of the working visas, Work Permits for employees and Permissions to employ foreigners for the company (or representative office) - are quite complicated and long procedures, which need to be carefully planned and implemented accordingly.
Use of the Electronic system of submission of the accounting reporting to tax, social security, pension and statistical authorities will make no need urgently to send tons of papers over borders with courier service to sign and seal the documents. Moreover, you can avoid very time-consumable explanations on how to print and sort several copies of multi-page (up to 60 pages) accounting, pension fund, social security and statistics reporting packages and special letters, and how and where to put signatures or seal on them.
In some cases subsidiary can be released from duty to pay VAT
If company/representation misses submission of accounting reportings to the tax authority it may lead to suspend bank account operations. Lift the ban from account may take up to two weeks.
This list is far from complete issues or questions which local companies / representative offices may meet. There are many minor things which may affect the decisions.
If you have a question or need to resolve the issue, please, Contact Us and we'll be more than happy to help.
