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The General Director in Russia: Recent changes in legislation and trends
We would like to inform you of important changes in Russian legislation with regards to the responsibility of General Directors and Shareholders.
As of March 31st, 2015 due to changes in the Criminal Code, it is prohibited for a General Director to register without having the intention to manage the respective company. The underlying aim of the legislation is to ensure that the General Director in fact takes responsibility for the company he/she manages and to end the practice of registering nominal General Directors, who might not respond to requests and as a result the company may not effectively be held liable to debt collectors, etc. Since the law now requires that the General Director actually manages the company, acting as a formal or nominal General Director is also no longer possible. General Directors have to make sure that they are fully aware of what is happening in their company, are able to answer complex questions from controlling authorities, and shall ensure that all obligations of the company are properly fulfilled.
This applies especially to General Directors performing interim management services since part-time General Directors are of great interest to the Russian tax authorities. We have noticed this from the increasing number of inquiries from the tax inspectorates. Even if the company’s activity is fully transparent and official, it takes a lot of time and effort to prepare documents and information upon request from the tax inspectorate during a tax audit. If the authorities suspect that the General Director does not really manage the company, they start investigations. This leads to potential risks for both the legal entity and the General Director personally, including criminal charges.
Another tendency relates to the current economic crisis and amount of the tax funds. Each case of reimbursement of VAT or declaration of losses is under the control of the tax inspectorate. The Sole Executive Body of the company is obliged to visit the inspectorate and give explanations. We have noticed that the Russian tax authorities have become stricter towards tax payers and we have seen over the previous few months that activity of the tax authorities has significantly increased.
Companies have two options for their Sole Executive Body:
- To appoint an individual person as the General Director. In this case, this person bears full responsibility for the company’s actions, including being personally liable for the company’s criminal offenses.
- To appoint a Management Company as the General Director. Actual company management can be performed either by the General Director of the Management Company or by another person acting under the Power of Attorney from the Management Company.
If a parent company would like to outsource the management of their subsidiary on a long-term basis, we see the Management Company as a better solution in the changing environment. The Management Company as the Sole Executive Body is regarded as more reliable both by state authorities and by third parties. Moreover, our good reputation and well-known Management Company brand helps to develop business. Due to the complex anti-trust clearance procedure required for taking over the management by a Management Company, the provision of short-term interim managing services by an individual still remains a good option; but nowadays the individual must pay more attention to the business activities of the company that he/she manages.
Another point for consideration is recent changes in the legislation that allow having several General Directors in one company. Although there are still a lot of open questions for using this in practice, we think that this will enable companies to implement more efficient business practices.
For further information please contact:
Group Director Tax & Legal
Article supplied by the SCHNEIDER GROUP