LEGAL ASPECTS OF OPENING IN RUSSIA OF REPRESENTATIVE OFFICES AND BRANCHES OF FOREIGN LEGAL ENTITIES.
TAX ACCOUNTING AND ACCOUNTS
I.      The Procedure of Setting up Representative Offices and Branches.
Currently the meaning of the terms "a branch" and "a representative office" is disclosed in Art. 55 of the Civil Code of RF (hereinafter - "the CC RF").
Para 1, Art. 55 of the CC RF defines a representative office as a separate subdivision of a legal entity (including a foreign one) located outside of the legal entity's location, which represents and protects interests of the legal entity.
A branch, according to para 2, Art. 55 of the CC RF, is a separate subdivision of a legal entity located outside of the legal entity's location, which performs all its function or their part, including the representation functions.
A comparative analysis of para 1 and para 2, Art. 55 of the CC RF makes it possible to reveal the similarity and difference between a branch and a representative office.
It is easy to see that the similarity consists in the fact that both a branch and a representative office are separate subdivisions of a legal entity located outside of the latter's location.
In accordance with para 3, Art. 55 of the CC RF, the representative offices and branches are no legal entities, they are provided with the property by legal entities that have set them up, and operate pursuant to the statutes approved by respective legal entities. The Heads of the branches and representative offices are appointed by the legal entities and act pursuant to the power of attorney granted by the legal entities.
The difference between a branch and a representative office consists in a wider functions of the former as compared to the latter. If a representative office is set up in order to undertake only legal actions restricted to representation and protection of interests of a legal entity, the activities of a branch consists in both legal and factual actions aimed at performance of all functions of a legal entity or their part, including transaction of business.
In view of the fact that a legal entity will have a separate subdivision to be located outside of its location, an authorized body of the legal entity approves the statute on the branch or representative office and appoints its Head, granting to the latter a power of attorney listing the authorities corresponding to the functions of the branch or representative office.
Russian law sets forth no special requirements to the contents of the statute of the branch or representative office, or any other permanent establishment of a legal entity. In the meaning of Art. 55 of the CC RF the statute of the branch or representative office should specify the functions to be performed by the branch or representative office.
It should be noted that the statute of the branch or representative office is an internal document which has only an informational meaning for the civil relations with third parties. Of decisive nature in such relations is the power of attorney granted to the Head of the branch or representative office. Respectively, it is the Head of the branch or representative office who acts on behalf of the legal entity in consummation of transactions or performance of other legal actions.
The process of creation (registration) by a foreign legal entity of the branches or representative offices in the Russian Federations is subdivided into three stages:
1.   Accreditation of the representative office or branch with the State Registration Chamber under the Ministry of Justice of RF.
2.   Registration of the representative office or branch with the Moscow Registration Chamber.
3.   Registration of the representative office or branch with tax authorities and with non-budget funds of RF (medical insurance, pension, social security funds), allocation of statistical codes.
Important is that the representative office or branch of a foreign legal entity in Russia may be opened only with approval of the accrediting authorities. Of no minor importance is the fact that a permission to open a representative office or a branch outside of Moscow requires a preliminary approval of its location by local executive authorities.
The accreditation is granted for the terms of 1, 2 or 3 years and, if necessary, it may be extended. The representative office is granted a permission to be opened.
The documents required for registration of a branch or representative office are as follows:
1.   The resolution of the authorized body of the foreign legal entity to set up a branch or open a representative office in the Russian Federation.
2.   The Statute of the branch or representative office.
3.   The power of attorney to the Head of the branch or representative office.
4.   A bank reference issued by the bank of the foreign legal entity concerned confirming its solvency (valid within 6 months upon its issue).
5.   The Charter of the foreign legal entity (in the event the law of the foreign country concerned does not provide for the existence of a charter, submitted should be a document verifying such legislative provision and issued by competent authorities in the country concerned).
6.   A certificate of registration of the foreign legal entity (valid within 6 months upon its issue).
7.   A document verifying tax registration of the foreign legal entity in its country (necessarily showing TIN or EIN, or another number identifying the foreign legal entity as a tax payer).
8.   A document attesting location of the branch or representative office in Russia (a contract of lease, sublease, a certificate of ownership).
9.   Reference letters from Russian business partners - at least two letters on letterheads of respective companies in an arbitrary form (for representative offices only).
Statutory registration takes 1.5-2 months (including registration with tax authorities and non-budget funds).
II.      Accounting and Accounts.
The tax authorities put forward the following requirements to the contents of accounts.
The accounts should necessarily comprise the following:
-   a written report on the activities of the foreign legal entity in the Russian Federation through a representative office or branch;
-   calculation of the taxes with respect to which the organization has taxation objects in the reported period, irrespective of the obligation to pay taxes;
-   computation of the annual average value of property and property tax in the reported period;
-   information on the payment of income and withholding of the tax payable by foreign legal entities on income from the sources in Russia in the reported period;
-   computation of the tax on advertising in the reported period in compliance with requirements of the Moscow State Tax Inspectorate instructions;
-   information on income of natural persons in the reported period according to 2-NDFL form (approved by the order of the Moscow State Tax Inspectorate dated 01.11.2000 No. BG-3-08/379 On Approval of the Forms of Accounting with Respect to Natural Persons Income Tax) attached with the register;
-   tax return of the unified social tax in the reported period;
-   computation of the tax on motor roads users in the reported period;
-   computation of the tax on vehicle owners in the reported period;
-   a copy of the land tax computation with a note of tax authorities at the location of the land lot on acceptance of the computation (if there is a land lot).
Book keeping of representative offices and branches differs greatly from that of the companies organized under Russian law.
Thus, for instance, the annual accounting of representative offices and branches of foreign companies should necessarily include the following:
-   a tax return of the income of the foreign legal entity according to the form approved by the Ministry of Taxes and Levies of RF;
-   a written report on the activities of the foreign legal entities in the territory of Russia through a representative office or a branch (should contain the information on the nature and types of activities of the foreign legal entity - company, firm, any other organization), its financial status, comparability of the data for the reported period with the preceding periods, the methods of book keeping and tax accounting.
The tax return and the report on the activities are to be submitted by all foreign legal entities transacting business in Russia, irrespective of the tax status and financial results of the activities in the reported period. The absence of business is no cause for the failure to submit the tax return and the report on activities.
If a foreign entity has several taxpayer's identification numbers (hereinafter - "the TIN") the tax return and the report on the activities are to be submitted for its every registered subdivision.
If a foreign entity has several subdivisions (places of business transaction) in Moscow, and each subdivision is allocated a respective code of registration reason (CRR), but the TIN is a single one, such entity submits common accounts.
The above content of accounting is not a final one. It should be noted that the tax status and obligations with respect to every tax are considered depending on what particular activities are carried out by the representative office or branch (e.g. if the branch is engaged in realization of the goods subject to payment of excise duty or mining of minerals, respective tax accounts should be additionally submitted for every tax).
Foreign entities are liable in accordance with the Tax Code of the Russian Federation for the failure to file tax returns and reports on the activities, as well as for the delay in submission of tax computations and payment of taxes to the budget.
The entities enjoying tax privileges under the Tax Code of RF, current laws of RF, laws of the subjects of the Russian Federation, intergovernmental treaties on avoidance of double taxation apply for the said privileges with reference to respective articles of legislative acts and attach the documents necessary for confirmation of the privileges concerned, and in the events specified by law - special computation of the sum of the privilege concerned as well as the documents confirming separate account for taxable and non-taxable objects.