Affiliated Branch and LLC: What is Better to Open to a Foreign Company in Russia?

Affiliated Branch of a Foreign Company and LLC with Foreign Participation (Sub-company): Differences, Advantages and Disadvantages

The two most common options for foreign companies to operate in the Russian Federation are affiliated branches and limited liability companies.

Offices are less popular, as their main purpose is to represent the parent company in Russia; representative offices cannot engage in commercial activities of the parent organization — their functions are limited to represent the interests of the company in Russian Federation (partners search, marketing research, promotions, etc.) and to officially protect its rights. Offices are not considered in this review.


Foreign companies open their branches in Russia to carry out activities of a commercial nature and bear property responsibility for the obligations assumed in connection with the conduct of activities in Russia. Foreign companies can carry out such activities through branches only from the date of their accreditation. Currently, accreditation is issued indefinitely.


Foreign companies can also conduct their activities in Russia by establishing a limited liability company (LLC), which can carry out commercial activities only after registration with the tax authorities for an unlimited period of time.

The table below shows the key differences between branches of foreign companies and sub-companies of foreign legal entities registered in the LLC legalform.

  Affiliated branch LLC
Peculiarities of creation Is not a separate legal entity. The parent organization is fully responsible for the obligations of the branch An independent legal entity that is responsible for its obligations. Liability is limited to its property. In case of insolvency (bankruptcy) of the LLC through the fault of its participants or through the fault of other persons who have the right to give binding instructions to the company or have the different opportunity to determine its actions, these participants or other persons can be assigned subsidiary liability for its obligations in case of insufficiency of the company's property.
State duty for registration 141,000 RUB 4,000 RUB
Registration period 25 working days 5 working days
Company management Director/Head/Manager, acting on the basis of a power of attorney. Greater control by a foreign legal entity General Manager/Manager, acting under the сharter without a power of attorney
Requirements for the name of the legal entity The name of the branch must coincide with the name of the parent organization and contain the "Branch" prefix There are no restrictions on the LLC name (except for the use of the words "Moscow" and "Russia", for which special permission is required)
Financing Facilitated transfer of funds: direct funding from the budget of the parent organization The contributions of the company's participants to the authorized capital (increase the size of the authorized capital and require additional registration); Loans provided by the company members; Gratuitous financial assistance from the company's participants (without increasing the authorized capital)
Peculiarities of labor relations Labor relations with employees are regulated by the norms of Russianemployment law, regardless of the organizational and legal form  
Taxation Activities are subject to taxation in accordance with the legislation of the Russian Federation in the case of permanent office status. If an international treaty contains other rules and regulations with respect to taxation than those provided for in the Tax Code of the Russian Federation, the provisions of the international treaty shall apply.Officerentisnotsubjectto VAT Subject to taxation in accordance with the legislation of the Russian Federation
Financial statements Specific financial statements. In this regard, an accountant with some experience in this reporting is needed. Standard statements for LLC, same as for Russian LLC’s. Can be maintained by usual accountant
Expenses When calculating the financial results, the Branch can use part of the expenses of the parent company. When calculating financial results, only its own expenses are used.
Residency upon foreign currency legislation Non-resident. The Branch can carry out settlements in the Russian Federation, both in currency and in roubles, and also receive revenue in the Russian Federation both in currency and in roubles. A branch of a foreign company located on the territory of Russia has a non-resident status under the currency legislation. The Russian organization has the right to carry out currency transactions with non-residents without restrictions. That is, one can freely use both foreign currency and roubles in settlements with non-residents. Resident. Currency transactions between residents are prohibited in the Russian Federation. Settlements in Russia are carried out only in roubles.
Currency Sales in Russia can be carried out both in roubles and in foreign currency. Can have accounts in foreign currency Sales in Russia can be carried out only in roubles. Can have accounts in foreign currency
Import operations It is necessary to import products through third parties Can import, declare and conduct customs clearance of products independently
Participation in tenders Restrictions can apply to foreign companies A Russian legal entity has an advantage while participating in tenders
Licensing activity Branch is not the best way to carry out licensing activities It is easier for a Russian legal entity to obtain licenses
Liquidation The decision on liquidation is made by the parent organization. In practice, the procedure for branch liquidation is somewhat simpler, since it does not include certain stages that are mandatory for the LLC. However, the branch will need to conduct a full tax and financial audit, as in the case of the LLC liquidation. The liquidation of the branch will take from 6 months to 1 year The liquidation will require the unanimous consent of all LLC participants. More complicated liquidation procedure compared to the branch. The liquidation of the LLC will take from 9 months to 1.5 years

Affiliated Branch

The branch is part of a foreign company, not an independent legal entity (in fact, it is the same as another office of the company, only in Russia).


Therefore, if we talk about financing, you can freely transfer to and from the branch account and it does not require the drafting of additional agreements for the provision of various services, and one does not need to adapt to the requirements of the rules of currency control (according to the law, Russian banks are required to request a special set of documents from the customers for processing transactions in foreign currency). The registration process takes 1.5–2 months. When accrediting branches it is necessary to pay a one-time state fee in the amount of 141,000 RUB.



In most cases, the liability of LLC participants (it can be both Russian and foreign individuals and legal entities) is limited to their authorized capital in the Company. The minimum authorized capital is 10,000 RUB (we recommend increasing it to at least 100,000 RUB, which will cover local expenses and help not to look suspicious in the eyes of the tax authorities and banks, which apply formal criteria for monitoring suspicious transactions and identifying one-day companiesin the course of their inspections). LLC conducts commercial activities without restrictions, interacts with customs and can obtain licenses (if necessary). Since it is an independent legal entity, its financing can be carried out either through the authorized capital or through service contracts. Transactions between a Russian company and any foreign company are regulated by the currency control authorities, and the Company must issue a transaction passport under certain criteria.

Starting from January 1, 2018, both residents and non-residents will submit supporting documents and information on foreign exchange transactions to the authorized banks, and export contracts instead of the transaction passport will be recorded in the bank in this connection.


Labor Relations

From the point of view of Russian labour legislation, both the branch and the LLC are subject to the same provisions and are allowed to employ Russian and foreign citizens.

In order to employ foreign citizens, LLC or branch is required to obtain a work permit. There are two types of work permits in Russia: 1) ordinary and 2) for highly qualified specialists (HQS). A standard work permit is issued for a period of one year only. The procedure for obtaining a permit for HQS is simpler, and the validity of such a permit is 3 years. Employers do not pay a social contribution from the salary of employees with a permission for HQS. Income tax for highly qualified foreign employees is 13% excluding time spent in Russia. (In the case of an ordinary work permit, the income tax will be 30% if the employee had spent no more than six months in Russia). The main condition for obtaining a work permit for HQS is an annual salary of at least 2,000,000 rubles (before tax).

Summing It Up

The main practical difference between a branch and an LLC is the way of financing transactions. In the case of a branch, its head office (since they are considered to be the same legal entity) can send money from abroad only by crediting a Russian bank account. An LLC (which is a subsidiary and a separate legal entity) requires a commercial reason for financing: a contract, loans or services that the LLC provides to the parent company. LLC financing can also be carried out by increasing the authorized capital.

There is a third option, which is quite often used in practice: financing is carried out by making additional contributions to the property by participants without increasing the authorized capital, but auditors in foreign countries can prohibit to consider such operations as expenses in this case.