GILS Corporate law: Russia

RUSSIA

(1) Forms of doing business and Establishment

1.1. What are the options for establishing a company's presence in a country (branch, representative office, subsidiary, etc.), and what are their key advantages and limitations?

1. A foreign company may establish its presence in the Russian Federation in several ways. 

1) А foreign company may create/establish a business company: a limited liability company or a joint stock company. 

Such a company may be established with different shares in the authorised capital, for example, with a minority or majority share in a company with other founders.

A company may also be established with a 100% shareholding where a foreign company will be the sole participant/shareholder.

Meanwhile, it should be taken into account that in the latter case, the new company cannot have another single-person business entity as its sole participant (shareholder).

Depending on the share of participation of a foreign company in the authorised capital of a Russian company, such a company will be recognized as a subsidiary or affiliate.

A company shall be recognized as a subsidiary if another (main) business company (partnership) by virtue of predominant participation in its authorised capital, or in accordance with an agreement concluded between them, or otherwise has the ability to determine decisions made by such company.

A company shall be recognized as a dependent company if another (predominant) company has more than 20% of voting shares of the first company. 

2) A foreign company may not re-create a subsidiary company. 

A foreign company may buy shares in an already established and operating Russian company.

In such a case, the same rules on recognizing a company as a dependent or subsidiary and the prohibition of the sole participant/shareholder in turn consisting of one person apply to the acquired company. 

3) A foreign company may open (accredit) a branch in the Russian Federation. 

A branch is a separate subdivision of a legal entity located outside its location and performing all or part of its functions, including the functions of a representative office.

4) A foreign company may open (accredit) a representative office in the Russian Federation.

A representative office is a separate subdivision of a legal entity located outside its location, which represents the interests of the legal entity and protects them. 

2. Advantages of a limited liability company. 

Business companies, unlike branches and representative offices, are legally and financially independent.

However, the independence of such subsidiaries does not prevent them from being fully subordinate to the owner of the foreign company.

As a rule, the establishment of a limited liability company (LLC) is preferable to a joint stock company (JSC).

LLC is easier and faster to register. LLCs are subject to fewer regulatory requirements and restrictions, including with respect to corporate governance.

1.2. What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration? 

1. Establishment of a limited liability company (LLC). 

Establishment of a company shall be carried out by decision of its founders, including a foreign company or the sole founder - a foreign company. The decision on establishment of a company shall be adopted by the meeting of founders of a company. In case of establishment of a company by one person the decision on its establishment shall be made by this person alone.

The decision on establishment of a company shall reflect results of voting of founders of a company and decisions made by them on issues on establishment of a company, on determination of company's corporate name, location of a company, amount of authorised capital of a company, on approval of charter of a company, on election or appointment of management bodies of a company, as well as on formation of audit commission or election of auditor of a company if such bodies are provided by charter of a company or are obligatory.

In case of establishment of a company by one person a decision on establishment of a company shall define the size of authorised capital of a company, procedure and terms of its payment, and also size and nominal cost of share of a founder.

Founders of a company if their number is more than one, shall conclude in written form a contract on establishment of a company defining procedure of realisation by them of joint activity on establishment of a company, amount of authorised capital of a company, amount and face value of share of each founder of a company, and also amount, procedure and terms of payment of such shares in authorised capital of a company.

Next, the company is registered in the Unified State Register of Legal Entities (USRLE).

The registration authority is the Federal Tax Service of the Russian Federation (FTS of Russia), which has established registration centres in each region.

To register a company, the registration centre (a specially designated Inspectorate of the Federal Tax Service of Russia in each region) must be provided with: 

- a completed application for state registration (form P11001); 

- a resolution of the general meeting of founders on the establishment of a joint stock company or a resolution of the sole founder; 

- the company's charter; 

- a receipt confirming payment of the state duty; 

- confirmation of the legal address, including documents from the юowner of the premises, draft lease agreement for the premises; 

- extract from the register of non-resident legal entities (if the юfounder is a foreigner); - civil passport of the applicant; 

- a power of attorney (if the documents are submitted by a representative). However, the representative is not the applicant, in юfact, the representative performs the function of a courier. 

It should be taken into account that the application for state registration (form P11001) is signed by all applicants, i.e., all founders of the company. Or one applicant - the sole founder of the company.

At the same time, since the sole or one of the founders of a Russian company is a foreign company, the decision to establish or participate in a Russian company is made by the body determined by the charter of the foreign company. This may be a general meeting of shareholders, a decision of the management board or the board of directors.

Meanwhile, the application for state registration (form P11001) is signed personally by an individual - the sole executive body of the foreign company (director or one of the directors, if there are several of them).

In this case, the personal presence of the director of the foreign company is required to sign and certify his signature on the application for state registration.

In turn, the application for state registration (form P11001) is signed by the applicant(s) at the time of submission to the registration centre or the signature of the applicant(s) is certified by a notary.

It is recommended to certify the signature of the applicant(s) by a notary and submit the application for state registration to the registration centre through a notary (such an electronic service exists and works successfully).

Authorities of the Federal Tax Service of Russia will independently register the registered company for tax purposes, transfer information to the statistical authorities (Rosstat) for registration and assigning statistical codes, transfer information for registration with the extra-budgetary funds - the Federal Social Security Fund and the Russian Pension Fund.

A registered company will need to produce a seal on its own, if the need for a seal is stipulated in its charter, open a current account in a Russian bank, and conclude a lease agreement for premises.

The minimum authorised capital for a limited liability company is RUB 10 000. The term of such payment may not exceed 4 months from the date of state registration of the company.

At the same time, when establishing an LLC, the minimum authorised capital must be paid in cash only (not in property). 

2. Creation of a joint-stock company (JSC). 

All the rules on establishment of a limited liability company (LLC) are fully applicable to the establishment of a joint stock company (JSC), except for one essential circumstance.

Unlike a limited liability company, the authorised capital of a joint stock company consists of the nominal value of uncertificated shares (securities) acquired by shareholders.

In this connection, before submitting documents for state registration of a JSC, it is necessary to register the issue of shares constituting the authorised capital of the joint stock company.

Registration of the issue of shares at the establishment of a JSC is carried out either by the Bank of Russia or by a specialised company - registrar.

Only after the state registration of a share issue can documents be submitted to the Federal Tax Service of Russia for the registration of a legal entity - a joint-stock company, accompanied by a document confirming the registration of the share issue.

The minimum authorised capital of a non-public joint stock company shall be RUB 10 000.

The minimum authorised capital of a public joint stock company is RUB 100 000.

At the same time, when creating a JSC, the minimum authorised capital must be paid only in cash (not property). 

3. Opening (accreditation) of a branch or representative office of a foreign company. 

A foreign company decides to open a branch/representative office in the Russian Federation. Such a decision is made by the body determined by the charter of the foreign company. This may be a decision of the general meeting of shareholders, management board, board of directors or the sole executive body.

The said body of the foreign company approves the Regulations on the branch/representative office, which must define the following: 

- the organisational and legal form and name of the foreign legal entity; 

- the address of location of the foreign legal entity in the country of registration; 

- name of the branch/representative office; 

- its location on the territory of the Russian Federation; 

- the purposes of establishment, opening and types of activities of the branch/representative office; 

- the management procedure of the branch/representative office of the foreign legal entity. 

In addition, a foreign company must apply to the Chamber of Commerce and Industry of the Russian Federation (CCI RF) for certification of information on the number of employees. Such certification is mandatory even if there are no employees. Exceptions are banks and airlines. A fee is charged for this certification.

The registration authority for accreditation of branches and representative offices of foreign companies is the Interdistrict Inspectorate of the Federal Tax Service of Russia No. 47 for Moscow (MIFNS No. 47 for Moscow).

At the same time, certain categories of branches/representative offices are accredited by other state bodies. For example, branches/representatives of banks are accredited by the Bank of Russia, branches/representatives of airlines by the Federal Air Agency, branches/representatives of mass media are accredited by the Ministry of Foreign Affairs of the Russian Federation.

For accreditation an application for accreditation of a branch/representative office in the form 15AFP is submitted to MIFNS No. 47 for Moscow.

The following documents must be attached to the application: 

- decision of a foreign company to establish a Russian branch/representative office;

- constituent documents (usually the charter) of the foreign company; 

- extract from the register of foreign legal entities (trade register) or other similar document issued by the country where the company is registered, confirming the legal status of the company; 

- a tax certificate (certificate) confirming the registration of the company as a taxpayer in this country, indicating the taxpayer code, if it is not indicated in the extract; 

- bank details of the foreign company; 

- information on employees certified by the Chamber of Commerce and Industry of the Russian Federation; 

- a document certifying the payment of the state duty; 

- a power of attorney for the head of the branch. 

Documents from a foreign company must have consular legalisation of documents or an apostille (depending on the jurisdiction of the foreign company). However, if an international treaty of the country of incorporation of the company and the Russian Federation provides for exemption from legalisation of documents.

All documents drawn up in a foreign language must be accompanied by a translation into Russian, which will be certified by a notary in the territory of the Russian Federation.

The amount of state duty for accreditation of one branch/representative office is a substantial sum - RUB 120,000.

At the same time, the fee for accreditation of a branch or representative office in the Russian Federation is RUB 4 000 for foreign companies from the Eurasian Economic Union.

Application for branch accreditation in Form 15AFP by an authorised representative of a legal entity, which may be: 

- the head of a foreign company; 

- the head of a Russian branch; 

- another person acting on the basis of authorization. 

After accreditation, a branch or representative office of a foreign company must: 

- receive a certificate of tax registration; 

-receive a notification of registration and statistics codes from Rosstat; 

- receive notification of registration with the extra-budgetary funds the Federal Social Security Fund and the Russian Pension Fund; 

- make a seal; 

- open a current account in a Russian bank; 

- organise bookkeeping and tax accounting; 

- execute the necessary documents for foreign employees to enter the Russian Federation, if any.

1.3. What additional authorizations/approvals are required to create a legal entity or start operations, and how do they vary depending on the type of business (if any)? 

1. Migration requirements. 

A foreign citizen may act as a director of a Russian company with foreign participation.

However, there are some requirements related to migration registration. In order to do so, he or she must fulfil the following conditions: 

- have a residence permit or a temporary residence permit, which confirms legal and permanent stay in Russia; 

- have a patent or work permit in Russia, which confirms his right to enter into labour relations on the territory of the Russian Federation. 

2. As mentioned above, a foreign company must apply to the RF CCI to certify the information on the number of employees. Such certification is mandatory even if there are no employees. 

3. Restrictions related to the share of participation in a Russian company. 

If the share of foreign participation in a Russian company exceeds 50%, it is not allowed to establish an insurance company.

If the share of a foreign company in a Russian company exceeds 49%, you cannot apply small business benefits. 

4. Tax peculiarities. 

Some tax requirements for Russian companies with foreign participation should be taken into account: 

- for companies with foreign participants the tax rate on dividends is increased (up to 15%); 

- if the share of a foreign organisation in a Russian company exceeds 25%, the simplified taxation system (STS) cannot be applied. 

5. Obtaining permits for certain types of activities. 

There are restrictions for companies with foreign participation in the following activities: 

- mining; 

- defence industry; 

- land lease in port and border areas; 

- any activities related to radioactive waste; 

- conduct large telecommunications and publishing business; 

- work with radioactive waste. 

Companies with foreign participation may not conduct the following activities: 

- medical services; 

- production of medicines; 

- production of medical equipment; 

- security activities; 

- transportation of passengers by motor vehicles for 8 or more persons, railway, water and air transport; 

- transportation of waste; 

- communication services; 

- educational services. 

6. Necessity to obtain authorization from a government commission. 

Transactions with residents of unfriendly countries that directly or indirectly result in the establishment, change or termination of rights to own, use or dispose of shares in authorised capitals of limited liability companies require approval of the government commission.

Such approval is required as a rule and under certain conditions in transactions involving stakes in operating Russian companies when acquiring or disposing of such stakes.

The list of unfriendly countries and territories includes Albania, Andorra, Australia, Great Britain, including Jersey, Anguilla, British Virgin Islands, Gibraltar, member states of the European Union, Canada, Iceland, Japan, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, Norway, Republic of Korea, San Marino, Northern Macedonia, Singapore, Switzerland, Taiwan (China), Ukraine, Montenegro, Taiwan (China), the United Kingdom, and the United States.

At the same time, foreign companies from friendly countries are free to establish legal entities in Russia.

1.4. What are the most common types of Legal Entities in your country and the differences between them in terms of taxation, liability, and management?

The Civil Code of the Russian Federation (CC RF) stipulates the following forms of commercial organisations: 

- limited liability companies; 

- joint-stock companies; 

- production cooperatives; 

- general partnerships; 

- partnerships on faith (limited partnerships); 

- business partnerships; 

- peasant farms; 

- state and municipal unitary enterprises. 

The most used forms of commercial organisations are business companies - limited liability company (LLC) and joint-stock company (JSC).

At the same time, limited liability companies (LLC) are the most widespread.

Limited liability company (LLC) is easier and faster to register. There are fewer regulatory requirements and restrictions on LLCs, including with regard to corporate governance.

State registration of a joint stock company (JSC), in addition to similar registration procedures for LLC registration, requires preliminary registration of the issue of shares constituting the authorised capital of the joint stock company.

In this regard, before submitting documents for state registration of a JSC, it is necessary to register the issue of shares constituting the authorised capital of the joint stock company.

Registration of the issue of shares upon the establishment of a JSC is carried out either by the Bank of Russia or by a specialised company - registrar.

The authorised capital of an LLC is divided into shares expressed as percentages or fractions. Such shares are property rights. The number of LLC participants must not exceed 50. 

The authorised capital of a JSC is divided into a certain number of shares certifying the rights of shareholders in relation to the company. Shares are book-entry securities. The rights to them are certified by entries on personal accounts with the registry holder (a separate organisation licensed to carry out the activity of keeping the register).

The number of shareholders is not limited by law.

In other types of commercial organisations, such as a production cooperative (PC), the property contributions of the members of the cooperative are pooled together to form a mutual fund.

In terms of management, the principle of membership is applied in basic organisations, including LLCs, JSCs and PCs. The main governing body is the general meeting of members/shareholders.

The management bodies also include: the board of directors (supervisory board), collegial executive body (management board, directorate) and sole management body (director, general director).

At the same time, the current legislation on JSCs, primarily public JSCs or those with 50 or more shareholders, requires mandatory formation of a board of directors (supervisory board).

In LLCs, only the meeting of participants and the sole executive body are obligatory.

The current legislation on LLCs and JSCs provides for the presence of several directors (sole executive bodies), which may be of interest to foreign investors.

1.4.1. What are the shareholder structures of these types of legal entities? 

LLC participants, JSC shareholders, PC members can be both individuals and legal entities.

In a production cooperative (PC) - members of the cooperative as a rule must take personal labour participation. At the same time, the number of those who do not take personal labour participation should not be higher than 25%. 

1.4.2.What is the Shareholders’ responsibility in these types of legal entities? 

LLC members and JSC shareholders are not liable for its obligations and bear the risk of losses related to the Company's activities to the extent of the value of their shares in the authorised capital of the LLC or JSC.

At the same time, under bankruptcy law, controlling persons, including members of LLCs/shareholders of JSCs, may be subject to subsidiary liability.

Controlling persons are persons who determine the actions of the organisation, influence decision-making and are beneficiaries. 

1.4.3.What is the responsibility of the representatives in these types of legal entities? 

Legal representatives of the organisation are persons authorised to represent this organisation on the basis of the law or its constituent documents. A legal representative acts on behalf of the organisation without power of attorney, including representing its interests and making transactions.

As a rule, the legal representative of an organisation is its sole executive body (director, general director).

The sole executive body (director, general director) must act in the interests of the company in good faith and reasonably.

The Director without power of attorney acts on behalf of the Organization, including representing its interests and making transactions on behalf of the Organization.

The Sole Executive Body (Director, General Director), as well as in certain cases, members of the Board of Directors (Supervisory Board), members of the Collegial Executive Body are liable to the Company for losses caused to the Company by their culpable actions (inaction). 

1.4.4. Briefly, what are the characteristics of the other types of Legal Entities? 

Business partnerships may be established in the organisational and legal form of a general partnership or a partnership on faith (limited partnership).

A business partnership acts on the basis of a memorandum of association, which is concluded by its founders (participants). 

1) Participants in general partnerships and general partners in partnerships on faith may be individual entrepreneurs and commercial organisations.

A general partnership is established and acts on the basis of a memorandum of association. The memorandum of association is signed by all its participants.

A participant of a general partnership is obliged to participate in its activities in accordance with the terms and conditions of the memorandum of association.

Each participant of a general partnership has the right to act on behalf of the partnership, unless the memorandum of association establishes that all participants conduct the affairs of the partnership jointly, or the conduct of affairs is entrusted to separate participants.

In the case of joint conduct of the affairs of the partnership by its participants, the consent of all participants of the partnership is required for each transaction.

Profit and losses of a general partnership shall be distributed among its participants in proportion to their shares in the share capital, unless otherwise provided by the memorandum of association or other agreement of the participants. 

2) A partnership on faith (limited partnership) is a partnership in which, along with the participants carrying out entrepreneurial activities on behalf of the partnership and liable for the obligations of the partnership with their property (general partners), there are one or more participants - contributors (limited partners), who bear the risk of losses related to the activities of the partnership within the limits of the amounts of their contributions and do not participate in the implementation of entrepreneurial activities by the partnership.

Management of the activities of a partnership on faith is carried out by general partners. The procedure for managing and conducting the affairs of such a partnership by its general partners is established by them in accordance with the rules of the Civil Code of the Russian Federation on general partnership.

Also, the rules of the Civil Code of the Russian Federation on general partnership are applied to the partnership on faith insofar as it does not contradict the rules on partnership on faith. 

3) Business partnership is a commercial organisation.

Legislation provides for the possibility of using business partnership by participants of innovative (including venture) entrepreneurial activity.

Business partnership is created by 2 or more persons.

The participants of the partnership are not liable for the obligations of the partnership and bear the risk of losses related to the activities of the partnership within the limits of the amounts of their contributions.

The partners may conclude an agreement on the management of the partnership.

Such an agreement may define the following terms and conditions: 

-obligations restricting, for a period of time determined by the partnership management agreement, the rights of partnership participants or other persons to financial, personal labour or other participation in the activities of other legal entities or individual entrepreneurs engaged in activities corresponding to the subject matter of the partnership, as well as measures of liability for breach of such obligations; 

- provisions on the special rights of partnership participants when leaving the partnership depending on the occurrence or nonoccurrence of certain conditions 

- procedure, terms and conditions of involvement of other legal entities and individuals in the partnership activities. 

4) Citizens conducting joint activities in the field of agriculture without forming a legal entity on the basis of an agreement on the establishment of a peasant farm shall have the right to establish a legal entity - a peasant farm.

Peasant farm is a voluntary association of citizens on the basis of membership for joint production or other economic activities in the field of agriculture, based on their personal participation and the association of property contributions by members of the peasant (farm) economy.

The property of a peasant farm belongs to it by right of ownership.

A citizen may be a member of only one peasant farm established as a legal entity.

1.5. What are the operating costs associated with the maintenance of a legal entity or presence in the country?

In fact, all regular expenses are considered operational, which cannot be attributed to capital, that is, the cost of acquiring assets that generate profit.

In paragraph 11 of section III of PBU 10/99 "Expenses of the organisation", other expenses are indicated, which are precisely related to operating expenses: 

• expenses related to leasing or other form of temporary use of the company's assets;
• expenses incurred when granting intellectual property rights for temporary use;
• expenses incurred with participation in the authorised capital of other entities;
• expenses that relate to the sale, disposal or other write-off of company assets, such as fixed assets;
• the interest that the company pays when receiving a loan;
• expenses related to payment for services of credit institutions;
• deductions made to estimated reserves, for example, to the reserve for doubtful debts;
• fines, penalties paid in connection with violation of the terms of the contract;
• losses of previous years that were recognized in the reporting year;
• accounts receivable with expired statute of limitations, as well as other debts that are not recoverable;
• exchange rate differences;
• the size of the markdown of assets;
• expenses for charity, sports, cultural and educational events, etc.;
• other expenses. 

(2) General taxation issues 

2.1. What tax obligations are associated with doing business in the country? 

Generally, the following taxes must be paid when running a business: 

- VAT; 

- profit tax; 

- corporate property tax; 

- transport tax; 

- fees to various foundations (for the employees). 

Russian tax legislation permits the use of different tax regimes - Simplified taxation system, Automated simplified taxation system and Unified agricultural tax. The use of special tax regimes is possible if the requirements established by the legislation are fulfilled. 

2.2. What tax and customs incentives are available in a country? 

Goods, which are imported from EAEU, are generally exempt from customs clearance. Customs duties depend on the types of imported goods and their importation procedures.

2.3. What are the accounting and reporting requirements for different types of presence, and how often must they be submitted? 

All Russian companies are required to keep accounting records and provide accounting reports to the tax authorities.

The main requirement for accounting is, of course, the requirement to keep accounting records, as well as such requirements as: keeping accounting records in rubles; preparation of primary accounting documents, keeping accounting registers and preparation of financial statements in Russian, etc.

Accounting reports are submitted only once a year, and the information must be submitted by the end of the calendar year - by 31 March of the following year, except for certain types of taxes. 

2.4. What is the taxation of dividends for foreign investors? 

The payment of dividends to non-residents of the Russian Federation is taxed at the rate of 15%, a different rate may be established by a double tax treaty. 

2.5. What strategies exist for minimising tax liability when conducting international business?

Strategies are developed for each business taking into account the challenges which are faced by the business.

(3) Regulatory and miscellaneous 

3.1. What are the general data protection and privacy requirements in the country, and how do they affect company operations? 

Personal data operators, including foreign ones – that is, legal entities and individuals who independently or jointly with other persons organise and (or) process personal data, as well as determine the purposes of personal data processing, the composition of personal data to be processed, actions (operations) performed with personal data, have a number of responsibilities in accordance with Federal Law No. 152-FZ "On Personal Data" (the "PD Law").

The Operator is obliged to notify Roskomnadzor of its intention to process personal data (except in certain cases), including those listed below.

When collecting personal data, the operator is obliged to provide the personal data subject, at his request, with the information provided for by the PD Law.

When collecting personal data, including through the Internet, the operator is obliged to ensure the recording, systematisation, accumulation, storage, clarification (updating, modification), extraction of personal data of citizens of the Russian Federation using databases located on the territory of Russia.

The operator independently determines the composition and list of measures necessary and sufficient to ensure the fulfilment of obligations provided for by the PD Law and regulatory legal acts adopted in accordance with it. Such measures, in particular, include:

1. appointment by the operator, who is a legal entity, responsible for organising the processing of personal data;

2. the issuance by the operator, which is a legal entity, of documents defining the operator's policy regarding the processing of personal data, local acts on the processing of personal data, as well as local acts establishing procedures aimed at preventing and detecting violations of the legislation of the Russian Federation, eliminating the consequences of such violations;

3. the application of legal, organisational and technical measures to ensure the security of personal data, their protection from unlawful or accidental access to them, destruction, modification, blocking, copying, provision, dissemination of personal data, as well as from other unlawful actions with respect to personal data in accordance with Article 19 of the PD Law;

4. implementation of internal control and (or) audit of compliance of personal data processing with the Federal Law and regulatory legal acts adopted in accordance with it, requirements for personal data protection, operator's policy regarding personal data processing, operator's local acts;

5. assessment of the harm in accordance with the requirements established by the authorised body for the protection of the rights of personal data subjects, which may be caused to personal data subjects in case of violation of the PD Law, the ratio of the specified harm and the measures taken by the operator aimed at ensuring the fulfilment of obligations provided for by this Law;

6. familiarisation of the operator's employees directly engaged in the processing of personal data with the provisions of the legislation of the Russian Federation on personal data, including requirements for the protection of personal data, documents defining the operator's policy regarding the processing of personal data, local acts on the processing of personal data, and (or) training of these employees.

The Operator is obliged to publish or otherwise provide unrestricted access to the document defining its policy regarding the processing of personal data, to information about the implemented requirements for the protection of personal data. 

In case of establishing the fact of illegal or accidental transfer (provision, distribution, access) of personal data, which resulted in violation of the rights of personal data subjects, the operator is obliged to notify Roskomnadzor from the moment such an incident is detected:

1. within 24 hours about the incident that occurred, about the alleged causes that led to the violation of the rights of personal data subjects, and the alleged harm caused to the rights of personal data subjects, about the measures taken to eliminate the consequences of the relevant incident;

2. within 72 hours on the results of the internal investigation of the identified incident, as well as provide information about the persons whose actions caused the identified incident (if any).

3.2. What labour law features should be considered when hiring local and foreign employees? 

The Labor Code of the Russian Federation provides for the basic principles of regulating labour relations and other directly related relations, as well as the obligations of all employers hiring employees in Russia.

The basic principles include: 

• freedom of work;
• prohibition of forced labour and discrimination in the field of labour;
• protection from unemployment and assistance in employment;
• ensuring the right of every employee to fair working conditions, including working conditions that meet safety and hygiene requirements, the right to rest, including limitation of working hours, provision of daily rest, weekends and non-working holidays, paid annual leave;
• equality of rights and opportunities for employees;
• ensuring the right of every employee to timely and full payment of fair wages not lower than the minimum wage established by federal law;
• ensuring equal opportunities for employees without any discrimination for job promotion, taking into account labour productivity, qualifications and work experience in the specialty, as well as training and additional professional education;
• ensuring the right of employees and employers to unite to protect their rights and interests, including the right of employees to form and join trade unions, the right of employers to form and join employers' associations;
• the obligation to compensate for damage caused to an employee in connection with the performance of his work duties;
• ensuring everyone's right for state protection of their labour rights and freedoms, including judicial protection;
• ensuring the right to resolve individual and collective labour disputes, as well as the right for strike in accordance with the procedure established by federal laws;
• the obligation of the parties to the employment contract to comply with the terms of the concluded contract;
• ensuring the right of employees to protect their dignity during their working life;
• ensuring the right to compulsory social insurance for employees.

Apart from the Labor Code of the Russian Federation, Federal Law No. 115-FZ dated 07/25/2002 "On the Legal Status of Foreign Citizens in the Russian Federation" (hereinafter - Law No. 115-FZ) regulates the specifics of the labour activities of foreign citizens in Russia.

The employer and the customer of works (services) have the right to attract and use foreign workers if they have a permit to attract and use foreign workers, and a foreign citizen has the right to work if he has reached the age of eighteen years, if he has a work permit or a patent. This procedure does not apply to certain categories of foreign citizens, in particular:

• permanently or temporarily residing in the Russian Federation;
• employees of foreign legal entities (manufacturers or suppliers) performing installation (supervision) work, service and warranty maintenance, as well as post-warranty repair of technical equipment supplied to the Russian Federation;
• invited to the Russian Federation as scientific or pedagogical workers, if they are invited to engage in research or teaching activities in bachelor's degree programs, specialty programs, master's degree programs, residency programs, internship programs,
• invited to the Russian Federation as medical, pedagogical or scientific workers, if they are invited to engage in relevant activities on the territory of the international medical cluster; 
• accredited employees of representative offices of foreign legal entities accredited in accordance with the established procedure on the territory of the Russian Federation, based on the principle of reciprocity in accordance with international treaties of the Russian Federation;
• recognized as refugees on the territory of the Russian Federation, - until they lose their refugee status or are deprived of their refugee status;
• those who have received temporary asylum in the territory of the Russian Federation, - until they lose temporary asylum or are deprived of their temporary asylum;
• having a temporary identity card of a stateless person in the Russian Federation;
• who are specialists in the field of information technology and have concluded an employment contract or a civil law contract for the performance of work (provision of services) with organisations engaged in activities in the field of information technology and have received, in accordance with the procedure established by the Government of the Russian Federation, a document on state accreditation of an organisation engaged in activities in the field of information technology (with the exception of organisations having the status of a resident of a technical and innovative special economic zone).

Depending on the mode of stay (residence), foreigners can be divided into permanent or temporary residents in the territory of the Russian Federation. Foreign citizens can enter the Russian Federation on the basis of a visa or on a visa-free basis.

To hire foreigners with a temporary residence permit, a residence permit, a refugee certificate or a certificate of temporary asylum, citizens of the EAEU, IT specialists need a national passport and social security number (SNILS) (Article 13 of Law No. 115-FZ).

Temporarily staying foreigners who arrived in the Russian Federation on the basis of a visa additionally require a work permit, foreign citizens who do not need a visa (Ukraine, Uzbekistan, Tajikistan) - a patent.

Citizens of Ukraine, instead of a patent or work permit, can present a document on fingerprinting issued by the Ministry of Internal Affairs (Decree of the President of the Russian Federation dated 27 August 2022 No. 585).

The employer is obliged to notify the territorial body of the Ministry of Internal Affairs of Russia at the regional level in the subject on whose territory they work about the conclusion of employment contracts with foreign citizens. The notification must be submitted no later than three working days from the date of conclusion of the contract.

3.3. What are the requirements for currency regulation and currency control? 

In accordance with Federal Law No. 173-FZ dated 10.12.2003 "On Currency Regulation and Currency Control" ("Law No. 173-FZ"), currency transactions between residents and non-residents are carried out without restrictions, with the exception of currency transactions:  

• on the use of digital rights as a means of payment for goods transferred (performed, rendered) (works, services), information and results of intellectual activity, including exclusive rights to them, which can be exercised only under foreign trade agreements (contracts) concluded between residents and nonresidents;
• certain types of currency transactions related to the acquisition and alienation of digital rights in respect of which a ban or conditions have been established by the Central Bank of the Russian Federation (CBR); 
• purchase and sale of foreign currency and checks (including traveller's checks), the nominal value of which is indicated in foreign currency, in the Russian Federation, which is carried out only through authorised banks and the state Development Corporation VEB of the Russian Federation.

When carrying out currency transactions, including the transfer of payments to non-residents, settlements are generally made by resident legal entities through bank accounts with authorised banks, digital ruble accounts opened by the operator of the digital ruble platform, the procedure for opening and maintaining which is established by the CBR, as well as electronic money transfers.

When carrying out foreign trade activities and (or) when residents provide foreign currency or the currency of the Russian Federation in the form of loans to non-residents, residents, unless otherwise provided by Law No. 173-FZ, are obliged to ensure, within the time limits provided for by foreign trade agreements (contracts) and (or) loan agreements:

1. receiving foreign currency or the currency of the Russian Federation from non-residents to their bank accounts in authorised banks for goods transferred to non-residents, works performed for them, services rendered to them, information and results of intellectual activity transferred to them, including exclusive rights to them;

2. return to the Russian Federation of funds paid to non-residents for goods not imported into the Russian Federation (not received on the territory of the Russian Federation), unfinished work, unproven services, untransmitted information and results of intellectual activity, including exclusive rights to them;

3. receipt of foreign currency or the currency of the Russian Federation from non-residents to their bank accounts in authorised banks, due in accordance with the terms of loan agreements.

A number of restrictions on foreign exchange transactions are established by Decree of the President of the Russian Federation dated 28 February 2022 No. 79 "On the application of special economic measures in connection with the unfriendly actions of the United States of America and foreign states and international organisations that have joined them."

Residents participating in foreign economic activity are obliged to carry out mandatory sale of foreign currency in the amount of 80% of the amount of foreign currency credited starting from January 1, 2022 to their accounts with authorised banks on the basis of foreign trade contracts with non-residents and providing for the transfer of goods to non-residents, provision of services to non-residents, performance of works for non-residents, transfer of intellectual property results to non-residents, in particular including exclusive rights to them.

Starting from March 1, 2022, are prohibited:

1. foreign exchange transactions related to the provision of foreign currency by residents in favour of non-residents under loan agreements;

2. crediting by residents of foreign currency to their accounts (deposits) opened in banks and other financial market organisations located outside the territory of the Russian Federation, as well as making money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers

3.4. What corporate law features should be considered when planning mergers, acquisitions, and company restructuring in the country? 

In mergers and acquisitions with respect to limited liability companies (LLC), it must be borne in mind that the company's participants enjoy the pre-emptive right to purchase a share or part of a share of a company participant at the offer price to a third party or at a price other than the offer price to a third party and a price predetermined by the company's charter in proportion to the amount of their participatory interests, unless the company's charter provides for a different procedure for exercising the pre-emptive right to purchase a share or part of a participatory interest (art. 21 of the Federal Law No. 14-FZ dated 08.02.1998 "On Limited Liability Companies", hereinafter referred to as the "Law on LLC").

A participant of the company intending to sell his participatory interest or part of the share in the authorised capital of the company to a third party is obliged to notify the other participants of the company and the company itself in writing by sending through the company at his own expense a notarized offer addressed to these persons and containing an indication of the price and other conditions of sale. The company's participants have the right to exercise the pre-emptive right to purchase a participatory interest or part of a share in the authorised capital of the company within thirty days from the date of receipt of the offer by the company.

The charter of an LLC may provide for longer periods of use of the pre-emptive right to purchase a share or part of a share in the authorised capital of the company by its participants, as well as by the company itself.

A transaction aimed at alienating a share or part of a share in the authorised capital of the company is subject to notarization by drawing up a single document signed by the parties, otherwise such a transaction will be invalid. A transaction aimed at alienating a share or part of a share in the authorised capital of the company in execution of an option to conclude an agreement may be made by separate notarization of an irrevocable offer (including by notarization of an agreement on granting an option to conclude an agreement), and subsequently notarization of acceptance. In this case, the share or part of the share in the authorised capital of the company passes to its acquirer, as a general rule, from the moment the corresponding entry is made in the Unified State Register Of Legal Entities.

The charter of a non-public joint-stock company (JSC) may also provide for a pre-emptive right for its shareholders to purchase shares alienated by other shareholders in return transactions at the offer price to a third party or at a price that or the procedure for determining which is established by the company's charter. Unless otherwise provided by the company's Charter, shareholders enjoy the pre-emptive right to purchase alienated shares in proportion to the number of shares owned by each of them.

A shareholder has the right to alienate shares to a third party, provided that other shareholders of the company and (or) the company do not exercise the pre-emptive right to purchase all alienated shares within two months from the date of receipt of the notification by the company, unless a shorter period is provided for by the company's charter. If the alienation of shares is carried out under a purchase and sale agreement, such alienation must be carried out at the price and on the terms that are communicated to the company (Article 7 of Federal Law No. 208-FZ dated 12/26/1995 "On Joint Stock Companies", hereinafter - the "Law on Joint Stock Companies").

In addition, the charter of a non-public JSC may provide for the need to obtain the consent of shareholders to alienate shares to third parties, such a provision of the charter of a non-public JSC is valid for a certain period provided for by its charter, but not more than five years from the date of state registration of the company or from the date of state registration of relevant amendments to the charter of the company.

A merger of companies is the creation of a new company with the transfer to it of all the rights and obligations of two or more companies and the termination of the latter.

The General Meeting of participants of each limited liability company (LLC) participating in the reorganisation in the form of a merger decides on such reorganisation, on approval of the merger agreement and the articles of association of the company created as a result of the merger, as well as on approval of the transfer act.

In LLC, such a decision on a merger is made by all participants of the company unanimously (Article 37 of Law on LLC).

In joint-stock companies, such a decision is made by the general meeting of shareholders by a majority of three-quarters of the votes of shareholders – owners of voting shares participating in the general meeting of shareholders (Article 49 of Law on Joint-Stock Companies).

When merging joint-stock companies, the general meeting also decides on the issue of electing members of the board of directors (supervisory board) of the company being created in the amount established by the draft merger agreement for each company participating in the merger, unless the charter of the company being created provides for the exercise of the functions of the board of directors (supervisory board) of the company being created by the general meeting of shareholders this society.

The LLC participating in the merger enters into a merger agreement, which defines the procedure and conditions of the merger, the procedure for exchanging shares in the authorised capital of each company for shares in the authorised capital of the new company.

In the case of a merger of a joint-stock company, the merger agreement must contain the procedure for converting shares of each company participating in the merger into shares of the company being created and the ratio (coefficient) of conversion of shares of such companies.

In the event of a merger, shares in the authorised capital of an LLC belonging to other companies participating in the merger are repaid.

Upon the merger of a joint-stock company, the shares of the company belonging to another company participating in the merger, as well as its own shares belonging to the company participating in the merger, are redeemed.

The sole executive body of the company created as a result of the merger performs actions related to the state registration of this company.

Upon the merger of companies, all rights and obligations of each of them are transferred to the company created as a result of the merger, in accordance with the transfer acts. 

3.5. What are the most efficient mechanics for dispute resolution?

The mechanism for resolving corporate disputes, including through conciliation procedures carried out by participants/shareholders and/or mediation, may be provided for by an agreement on the exercise of the rights of LLC participants or a joint-stock agreement of JSC.

In the absence of such an agreement in accordance with Article 225.1. of the Arbitration Procedural Code of the Russian Federation disputes related to the creation of a legal entity, its management or participation in a legal entity that is a commercial organisation, as well as a non-profit organisation uniting commercial organisations and (or) individual entrepreneurs, i.e. corporate disputes, are considered by the arbitration court at the address of the legal entity.

Corporate disputes may be referred to an arbitration, with the exception of a number of disputes: 

1) disputes on the convening of a general meeting of participants of a legal entity and disputes arising from the activities of notaries certifying transactions with shares in the authorised capital of limited liability companies; 

2).corporate disputes in relation to a business company that is essential for ensuring the defence of the country and the security of the state in accordance with Federal Law No. 57-FZ of April 29, 2008 "On the procedure for Foreign Investments in business companies of strategic importance for ensuring the defence of the country and the security of the state" (except for disputes related to with the ownership of shares, shares in the authorised (share) capital of such legal entities); 

3) disputes related to the application of the provisions of Chapters IX and XI.1 of Federal Law No. 208-FZ dated December 26, 1995 "On Joint-Stock Companies"; 

4) disputes related to the exclusion of participants of legal entities. 

Such a dispute may be submitted to an arbitration court only within the framework of arbitration proceedings administered by a permanent arbitration institution that has approved, deposited and posted on its website on the Internet information and telecommunications network the rules for the settlement of corporate disputes in accordance with the procedure established by federal law, with the place of arbitration on the territory of the Russian Federation.

Corporate disputes that have arisen between the participants of a legal entity and the legal entity itself may be submitted to the arbitration court only if the legal entity, all participants of the legal entity, as well as other persons who are plaintiffs or defendants in these disputes, have concluded an arbitration agreement on the transfer of these disputes to an arbitration and if such arbitration proceedings will be administered by a permanent arbitration institution that has approved, who deposited and posted on their website on the Internet the rules for the settlement of corporate disputes in accordance with the procedure established by federal law, with the place of arbitration on the territory of the Russian Federation.

 

Authors:

Andrey Borovkov, Vladimir Komarov, Yana Dianova.