Many people often confuse the concepts of “branch” and “representative office” and use them in a synonymous connotation, but there is still a difference between these terms, which will be discussed in this article. You have probably heard such concepts as “separate division”, “branch”, “representative office”... What is the difference? This information can be useful for any person, because you never know what will happen to you tomorrow. So, what is the difference between a branch and a representative office?
Definition
A branch is a separate division of a company or organization (that is, a legal entity), which is located in a different location than the legal entity itself, and at the same time carries out all of its functions or a certain part of them.
A representative office is a separate, separate division of a company or organization, which is located in another location, but it is limited only to the functions of protecting the interests of a legal entity, representing its interests (concluding transactions on its behalf, performing other legal actions, etc.)
Legal status
Both branches and representative offices have one thing in common - they are not assigned the status of a legal entity, but they have full right to dispose of the property of the legal entity that created them and act in accordance with the duties assigned to them.
Individuals holding management positions in any separate divisions can be appointed to the position only by the relevant body within the organization. They act on the basis of a power of attorney issued by a legal entity.
The absence of legal entity status means the following for separate enterprises:
- any transactions or agreements carried out on behalf of a branch or representative office are in fact concluded by the legal entity itself;
- the same legal entity is subsequently responsible for all circumstances that were caused by the activities of the branch or division;
- both branches and representative offices of a company cannot be plaintiffs or defendants in legal proceedings, since they do not have the right to independently, on their own behalf, take part in such processes.
Features of the functioning of foreign legal entities
It is allowed to establish separate structures on the territory of the Russian Federation and abroad. However, only commercial structures can open their own representative office in a foreign country.
It is also allowed to open branches and representative offices of foreign legal entities on the territory of Russia. Accreditation is mandatory (Article 21 of Federal Law No. 160-FZ). Accreditation of foreign branches or representative offices is carried out by the tax service (order of the Federal Tax Service dated December 22, 2014 MMV-7-14/668). The procedure is completed within 25 working days. For accreditation of one branch, a state fee of 120 thousand rubles is withheld. (Article 333.33 of the Tax Code of the Russian Federation). The application form for accreditation of foreign representative offices was approved by order No. ММВ-7-14/681 dated December 26, 2014.
An exception is made for credit institutions. Their accreditation is carried out by the Bank of Russia (Regulation of the Central Bank dated April 22, 2015 No. 467-P). The procedure is completed within 90 working days. The fact of accreditation is the appearance of a corresponding entry in the register of branches and representative offices of foreign legal entities.
Branch functions
The difference between a branch and a representative office is that a branch has much broader functionality, which may include production operations, work with the economy, as well as the implementation of trading or other activities relevant to the legal entity to which the branch belongs. Moreover, since the head of the branch has a power of attorney issued to him, the branch can enter into dialogue with other legal entities, conduct any transactions that will benefit the company, appear in court, etc. The purpose of the branch is the same as that of parent organization - making a profit. The financial and material security of a branch depends first on the initial investments of the legal entity, and then on the income generated by the activities of the branch.
It is important to take into account that the branch operates strictly within the work focus of its legal entity and does not engage in independent activities.
Specific functions of the branch:
- Performing the entire scope of functions of the parent company or a certain part of them.
- Conducting business activities.
- Having your own cash balance.
- Cooperation with the bank on the creation of a separate account.
Unit forms
The main types of separate structures are branches and representative offices of legal entities. Their legal status will be determined by law.
A representative office is a separate division that is located outside the location of the parent company. Its purpose is to represent the interests of the organization and protect them.
A branch is a type of separate division that is located outside the location of the organization, but has the rights of the parent company or part of them.
In Russia, other forms of territorial isolation are also allowed. They can be created on a simplified basis. Usually they are not vested with the powers that branches and representative offices of legal entities have. This includes workshops, points or agencies.
For example, a large chain store does not need to create a branch when opening a new outlet. However, the burden of purchasing, delivering goods and conducting other business transactions will fall on the parent structure.
A similar situation with branches and representative offices is observed in the Republic of Belarus. A separate type are offshore companies, which act as independent legal entities. The purpose of creating an offshore is to obtain a special tax status. Such companies allow the business owner to significantly reduce tax burdens. But at the same time, the state where the owner of the enterprise lives does not receive the lion's share of taxes. Since income taxation is carried out according to the laws of the state that registered the offshore company.
Functions of the representative office
Representative offices do not have such functionality (and this is the main difference between a branch and a representative office); their entire task is to represent the interests of their parent organization, and the representative office is not prescribed to engage in production activities or matters in the field of commerce. It is provided by a legal entity and does not bring direct revenue, thereby being a costly enterprise, although potentially the costs of the representative office are subsequently covered by the results of its activities.
Specific functions of the representative office:
- Performing representative functions only.
- Lack of housekeeping.
- Lack of own cash balance.
- No need for a separate bank account.
Organization procedure
The company's constituent documents contain all available information.
The charter must reflect data that includes the number of branches and representative offices.
If senior management has decided to create one of two separate divisions, then information about such changes should be included in the charter.
It indicates the name of the unit and its location.
If this information is not in the charter, then this fact may lead to negative legal consequences for officials of the parent organization.
In particular, they may be held accountable under the Code of Administrative Offences. The sanction is due to the lack of data in the company’s register indicating that it has a representative office.
This fact, in turn, gives rise to the lack of information about one of the separate divisions in the unified register of legal entities .
Branches and representative offices are not registered with the tax authorities.
The legislator writes that they do not act as legal entities with independent economic activities.
This provision should not be confused with Article 188, paragraph 2 of the Civil Code of Russia .
Which states that branches, like representative offices, must be registered with the tax authority 30 days from the date of their creation.
Some nuances
How does a representative office or branch work? What is the difference? We have already answered these questions, but the topic does not end there. For example, the reader will probably find it useful and interesting to learn about some of the subtleties in matters of separate divisions.
Any separate division of any organization must comply with these points:
- the location of the separate unit must be different from the location of the parent organization itself;
- any separate unit must have at least one stationary workplace that will be able to function for more than one calendar month;
- it must also have at least one employee to perform work duties at the official legal level;
- a branch, representative office or other separate enterprise is under the full control of the legal entity that opened it.
To operate both a branch and a representative office, as a rule, it is necessary to undergo accreditation by specialists appropriate for the task, and sometimes to obtain certain licenses (if the activities of a separate enterprise require them). There are almost no differences between a branch and a representative office in this matter.
The manager of a branch, as a rule, receives delegated opportunities to pay wages to employees of his staff, as a result of which the branch is obliged to register at its location in these funds of the Russian Federation:
- pension fund;
- social insurance fund;
- territorial compulsory health insurance fund.
A representative office does not require such legal procedures, but it does not generate profit as such. Carefully analyze your situation to conclude whether it is worth opening a separate enterprise, and if so, which one. Branch and representative office of a legal entity - the differences between these terms must be learned by every manager who is considering the creation of such structural units.
Another important point is that in order for a separate enterprise to legally carry out its activities in accordance with the objectives of its parent organization, it must first go through the registration procedure and register for taxation with the relevant authorities that monitor the implementation of this regulatory government regulations. Very often, situations arise when a legal entity opens a separate enterprise, but it ends up working completely differently than the heads of the parent organization planned, as a result of which such subtleties must be studied and planned in advance.
Branches and representative offices - what you need to know
Many entrepreneurs, expanding their business, are faced with the issue of opening a representative office or branch in other cities or regions of the federation.
How to properly build your relationship with tax authorities, what liability is provided for violation of legislation in this area, how to assess the need to open a branch or representative office - you will find answers to these and other questions in the article by Alexey Dautov, Director of the Legal Consulting Department.
Often, the work of an entrepreneur is not limited to running a business within his hometown; commercial interests arise in other cities and regions of the federation, and labor relations arise with employees working there. Accordingly, the question arises of how to properly build your relationship with the state and tax authorities and whether there is a need to register a branch or representative office of the company, as well as understand what will change in general in your taxation and what liability is provided for violation of the law in this area.
So, what is a branch or representative office of a legal entity?
In accordance with the Civil Code of the Russian Federation, separate divisions of a company are branches and representative offices, information about which must be included in the Charter of the company.
Representation, according to Art. 55 of the Civil Code of the Russian Federation is a separate division of a legal entity located outside its location, which represents the interests of the legal entity and protects them.
A branch is a separate division of a legal entity located outside its location and performing all or part of its functions, including the functions of a representative office.
Representative offices and branches must be indicated in the constituent documents of the legal entity that created them.
Thus, branches and representative offices differ only in the scope of their functions, and the entrepreneur himself decides which of them is appropriate for him to create for the development of his company.
The next naturally arising question is when and in what cases it is necessary to register a branch or representative office.
As mentioned above, a branch or representative office is a separate division of an organization. According to paragraph 2 of Art. 11 of the Tax Code of the Russian Federation (hereinafter referred to as the Tax Code), a separate division of an organization is any territorially separate division from it, at the location of which stationary workplaces are equipped.
The Tax Code introduces two main criteria, the presence of which leads to recognition of a separate division of the organization as such:
- territorial isolation;
- the presence in such a separate structural unit of stationary jobs created for a period of more than one calendar month.
What can be considered a territorially separate unit? This is a division of an organization that is located outside its location. The location of the legal entity in accordance with Art. 54 of the Civil Code of the Russian Federation is the place of its state registration. Accordingly, a legal entity registered by the Moscow Tax Inspectorate will have its location in Moscow, and the opening of a separate division in any other subject of the Federation will fall under the concept of opening a branch or representative office.
What can be considered a stationary workplace? The concept of a workplace is disclosed in the Federal Law of July 17, 1999 N 181-FZ “On the Fundamentals of Labor Safety in the Russian Federation.” According to Art. 1 of the Law, a workplace is a place where an employee must be or where he needs to arrive in connection with his work and which is directly or indirectly under the control of the employer.
Such “stationary workplaces” can be understood as, inter alia, one, two or more employees performing certain job duties in the relevant territory, outside the location of the organization. Including the performance of any work under an employment contract concluded for a period of more than one month.
Thus, if the specified criteria are present, any structural unit is considered a separate division of the organization, regardless of whether or not this unit is called a branch (representative office), and equally, regardless of whether its creation is reflected in the constituent or other organizational and administrative documents of the parent organization , and also regardless of what powers are vested in the corresponding structural unit.
In accordance with Art. 83 of the Tax Code, taxpayers are subject to registration with the tax authority at the location of the separate division. That is, the presence of at least one employee permanently working in a territorially separate division of the company is considered by the current legislation of the Russian Federation as the creation of a separate division. The organization is obliged to register for tax purposes at the location of the separate division and enter information about it into the Charter.
The actual activity of a separate division, in the event that the Company was not properly registered for tax purposes at the location of the separate division, will be regarded by the tax authorities as a violation of Articles 116-117 of the Tax Code of the Russian Federation:
- According to Art. 116 of the Tax Code of the Russian Federation for violation of the deadline for filing an application for registration with the tax authority: for a period of less than 90 days - a fine of five thousand rubles;
- for a period of more than 90 days - a fine of 10 thousand rubles.
Conducting activities by an organization or individual entrepreneur without registering with the tax authority for more than three months entails a fine in the amount of 20 percent of the income received during the period of activity without registration for more than 90 days.
There are also sanctions provided for in the Code of Administrative Offenses.
So, according to Art. 15.3, clause 1 of the Code of Administrative Offenses of the Russian Federation, violation of the established deadline for registration with the tax authority entails the imposition of an administrative fine on officials in the amount of from five to ten times the minimum wage. Violation of the established deadline for filing an application for registration with a tax authority, associated with conducting activities without registration with a tax authority, entails the imposition of an administrative fine on officials in the amount of twenty to thirty times the minimum wage.
It is necessary to take into account that the provisions of the Tax Code apply to relations regarding the establishment, introduction and collection of tax fees and do not regulate the procedures for registering legal entities and their separate divisions. That is, if a division of an organization falls under the definition of a “separate division”, it must be classified as a branch or representative office, information about it must be entered into the Company’s Charter and changes to the Charter must be registered in the manner prescribed by the Civil Code of the Russian Federation, the Federal Law “On Limited Companies” liability”, Federal Law “On State Registration of Legal Entities”, as well as register with the tax authorities at its location.
If the Company was registered for taxation at the location of a separate division, but no changes were made to the Charter regarding the presence of a separate division, liability is provided in accordance with Art. 14.25. Arbitration Procedure Code of the Russian Federation: “Failure to provide, or untimely provision, or provision of false information about a legal entity or an individual entrepreneur to the body carrying out state registration of legal entities and individual entrepreneurs, in cases where such provision is provided for by law, entails a warning or the imposition of an administrative fine on officials in the amount of fifty times the minimum wage.”
Bottom line
From all the information presented, we can conclude that the difference between a branch and a representative office lies primarily in the fact that these divisions, separate from the main legal entity, have completely different functions and scope of tasks. A branch is a structural unit of a more universal nature, while a representative office solves only an insignificant (if compared) volume of tasks. What to open - a representative office or a branch? We have looked at what the difference is, we hope this will help you understand which type of separate entity is best suited for your organization.
How to open in another city
In order for an organization to open a representative office in another city, it needs:
- Make a decision to open a division.
- Change the Constituent Documents and the Charter, add information about the creation of a representative office.
- Create a Regulation on the structural unit.
- Register with the Federal Tax Service, receive a Notification of registration and amendments to the Unified State Register of Legal Entities.
- Notify the Pension Fund, Social Insurance Fund.
- Open a bank account.
A transmission dedicated to the concepts of representation and power of attorney is presented below.
