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Closing Down (Deregistration) a Representative Office of a Foreign Company in Russia

Date: 04-07-2011
A foreign company decided to close down its representative office in Russia.
What would be the appropriate scenario in this case?
Many foreign companies enter the Russian market through opening representative and branch offices in Russia. The main difference of such separate subdivisions of the company is that a representative office may only represent the interests of the head office whereas a branch office may engage in both production and business.

It is often that in the course of its operation a company concludes that it is more convenient to operate through a Russian company with a 100% foreign participatory interest, or simply decides to leave the Russian market for whatever reason. The main difficulty is that the procedure of closing down a foreign representative (or branch) office in Russia is rather long and involves much red tape. In particular, to ensure that a representative office does not have any documents pending which could later result in a harmful effect for the head office or the head of the representative office, the company must take several actions and obtain several certificates. The whole procedure involves the following:

1.?First, contact the authority that accredited the representative office. There are a few accrediting authorities in Russia, but of them only one or two may accredit business companies: Chamber of Commerce and Industry of the Russian Federation and State Registration Chamber with the Ministry of Justice of the Russian Federation. After the required package has been filed to the competent authorities, one may obtain a certificate of striking the representative office off the Uniform State Register of foreign companies’ representative offices accredited in the Russian Federation. The accrediting authorities will charge for consideration of the documents, and the amount will depend on the urgency of the matter.

2.?Second stage, which can be effected simultaneously with the first one, is settlement and formalization of closing down the representative office of a foreign company in the tax authorities of the Russian Federation. For example, foreign taxpayers of Moscow are registered with Inspectorate of the Federal Tax Service of Russia No. 47. Technically, registration and deregistration of representative offices of foreign companies with the tax authorities of Russia is governed with Order issued by the Ministry of Finance of the Russian Federation No. 117n dd. 30 September 2010 which, inter alia, stipulates requirements to documents submitted to tax authorities for the purpose of deregistration of a representative office. However, it is not that easy in reality. Inspectorate of the Federal Tax Service of Russia No. 47 developed a certain sequence of actions to be taken.

First, one shall file a notice of closing down the foreign representative office in a free form to the documents department and then have any current tax debt confirmed in the taxpayer department. In this department one shall sign a certificate confirming its status as current on taxes. It is important to know that if the company has any small taxes or contributions debt the tax authority will impose fines and penalties on that. Any such debt shall be fully repaid before the confirmation certificate is obtained.

There may be a tax debt payable to the company which shall also be settled. If the amount is small and the company has no real need to repay it, one may file on behalf of the representative office a letter of waiver of the said debt with the taxpayer department. It is only upon consideration of the letter (in case of a tax debt before the company) and provided that a reconciliation statement signed by a representative of the tax authority and the representative office of a foreign company is available, that the taxpayer department files an office memo on absence of any debt with the registration department.

In addition, one shall contact the desk audit department as well as the data records and processing department. One shall submit a closing-down income declaration and tax calculation (declaration) to the data records and processing department and any documents required by the tax authority to the desk audit department. It is only upon confirmation of the deregistration of the foreign representative office in the above three departments one may submit a package of documents specified in the above Order to the registration department and obtain a formal notice on deregistration of the representative office with the tax authorities.

3.?The final stage of closing down a foreign representative office in the Russian Federation is deregistration of the representative office with three funds: Federal Compulsory Medical Insurance Fund (FCMIF), Social Insurance Fund (SIF) and Pension Fund of the Russian Federation (PFRF).
The representative office may face the most complicated procedure at this stage with deregistration with PFRF. This is because to ensure deregistration, first, PFRF requires a large package of documents and, second, technically, the Fund must conduct a desk audit of the representative office in question. Even in case the representative office has not carried out operation for a long time, the desk audit shall be conducted and formalized in writing, and all documents required to the Fund shall be submitted.

However, a positive point of deregistration of a representative office with the funds is that the office has already been deregistered with the tax office and stricken out of the register of accredited representative offices. Thus, the officials of the funds make an attempt to facilitate the deregistration process because they understand that the representative office cannot continue to operate. To ensure prompt deregistration of the representative office with the funds a representative of the representative office must have a stamp of the representative office along with their power of attorney, if possible. Following confirmation and formalization of all documents PFRF and SIF issue certificates of deregistration and FCMIF issues an extract from its company database.

Eventually, five certificates are required to have the representative office officially closed down in Russia:
- certificate issued by State Registration Chamber with the Ministry of Justice of the Russian Federation on striking the representative office of a foreign company off the Uniform State Register of foreign companies’ representative offices accredited in the Russian Federation;
- certificate of deregistration with tax authorities;
- certificate of deregistration with Pension Fund of the Russian Federation;
- certificate of deregistration with Social Insurance Fund;
- extract from the database of the Federal Compulsory Medical Insurance Fund under seal of the FCMIF and a specification that the entry on the representative office has been removed from the database.

Kirill Shcherbakov,
Head of Corporate Practice
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