Russian law provides four primary methods for investing in an LLC: a shareholder loan, an increase of the charter (share) capital, a contribution to the company’s assets, and a loan from a third-party company. The optimal choice depends on the investor’s objectives, the tax structure of the transaction, and applicable statutory requirements.
1. Shareholder Loan
A shareholder may provide temporary financial assistance to the company in the form of a monetary loan — either interest-bearing (at a minimum rate) or interest-free. An interest-free loan from a shareholder does not generate taxable income for the borrowing company, as Chapter 25 of the Tax Code of the Russian Federation does not provide for imputed benefit taxation in such arrangements, regardless of the applicable tax regime.
Key features:
- Funds may be provided for specific purposes or without a designated purpose (e.g., to finance working capital).
- The loan may be repaid at any time or extended by mutual agreement of the parties.
- Tax treatment depends on several factors: whether the loan bears interest, the lender’s residency status (Russian resident or non-resident), the loan amount, and whether the parties are related.
2. Increase of Charter (Share) Capital
A contribution to the charter capital constitutes an investment in exchange for a share in the company. Contributions may be made in cash, assets, or property rights. The charter capital may be increased only after it has been fully paid up. All decisions relating to such an increase must be adopted unanimously by all participants.
Registration procedure:
- A resolution of the participant(s) to increase the charter capital.
- State registration of the amendments with the tax authorities.
- Amendments to the company’s charter and the Unified State Register of Legal Entities (USRLE).
- Required filings: application for amendments to the USRLE, resolution on amendments to the constituent documents, and the restated charter.
Tax treatment: contributions to the charter capital do not constitute taxable income for the company and are not subject to income tax (Clause 3, Part 1, Article 251 of the Tax Code; Ministry of Finance Letter No. 03-03-07/12581 dated 27 February 2019).
3. Contribution to the Company’s Assets
In TPG Legal’s view, this is the most efficient and preferred mechanism for supplementing a company’s working capital. A contribution to assets does not increase the charter capital, does not alter the participants’ shareholding proportions, and — critically — does not require state registration of amendments to the company’s constituent documents.
Key conditions:
- The obligation to make contributions to assets must be provided for in the company’s charter.
- Contributions are made by participants in proportion to their shareholding, unless the charter provides otherwise.
- The charter may establish certain restrictions (e.g., maximum contribution amounts).
- Contributions may be made in cash or in kind.
Tax treatment: contributions to assets do not constitute taxable income for the company and are not subject to VAT (Ministry of Finance Letter No. 03-03-06/1/84929 dated 23 November 2018; Article 27 of Federal Law No. 14-FZ).
4. Loan from a Third-Party Company
An external company — including a foreign entity — may enter into a loan agreement with the LLC. Unlike a shareholder loan, such a loan must be interest-bearing and concluded on arm’s-length terms. The loan proceeds are not subject to taxation, and the funds may be returned to the lender at any time.
Tax considerations:
- The lender is subject to income tax on interest received.
- The borrower may deduct interest paid when calculating its taxable profit.
- If the loan qualifies as a controlled transaction, a notification must be filed with the tax authorities, specifying the accrued interest based on the company’s accounting records.
- The principal amount of the loan is not subject to taxation and may be repaid at any time.
5. Comparative Overview
| Shareholder Loan | Charter Capital Increase | Contribution to Assets | Third-Party Loan | |
| What is transferred | Monetary funds | Cash or assets | Cash, tangible assets, shares in other entities, state/municipal bonds, exclusive IP rights and rights under license agreements | Monetary funds |
| Who provides | Individual or legal entity | Existing shareholder or a third party wishing to become a shareholder | Shareholders of the company | Legal entity |
| Taxation | Depends on multiple factors: interest-bearing/interest-free, lender’s residency status, loan amount, related-party status | Contribution does not constitute taxable income for the recipient; not deductible for the shareholder | Contribution does not constitute taxable income for the recipient; not deductible for the shareholder | Depends on factors: lender’s residency status, loan amount, and related-party status |
Anna Morkhova
Associate | TPG-Legal