Taxpayers implementing major investment projects may, in many Russian regions, benefit from tax and economic incentives fixed at regional level.
To receive beneficial status, the relevant project must meet specific criteria (for example, as a priority investment project or project of particular importance). This presupposes injecting substantial financial resources into the economy of the region and creating jobs at new production facilities.
These incentives may include:
- reduced total corporate profits tax rate to 17%;% (instead of 20%);
- exemption from property, land and transport taxes;
- exemption from customs duties and import VAT; and
- subsidies compensating taxes paid to the regional budgets and/or interest paid to Russian banks on loans and credits.
Special economic zones
Taxpayers can benefit from incentives granted to special economic zones (“SEZs”) which have been created to promote economic growth in specific areas and regions of Russia1.
The general aim of SEZs is to attract foreign investment. As SEZs are exempt from customs duties, they are an effective means of promoting import and export business. The tax advantages provided for the residents of these zones are as follows:
- reduced corporate profits tax;
- exemption from property tax and land tax; and
- exemption from customs duty and VAT (in several cases).
Types of SEZ
There are four types of SEZ:
- technical research and implementation zones (such as Saint Petersburg, Dubna, Tomsk, Zelenograd);
- industrial production zones (such as Lipetsk, Tatarstan, Voronezh);
- recreation and tourism zones (such as Altai, Buryat Republic, Kaliningrad); and
- port zones.
A company registered in Russia is entitled to obtain the status of a SEZ resident after entering into a special agreement with the local agency in charge of the relevant zone.
Skolkovo innovation centre
The participants in the Skolkovo initiative (created in the Moscow Region to conduct and commercialise research and development) benefit in particular from the following tax, customs and accounting incentives:
The participants in the Skolkovo initiative benefit in particular from the following tax, customs and accounting incentives:
- 0% corporate profits tax rate applicable to income generated as a result of research, development and commercialisation for the first ten years of a participant’s registration in the Skolkovo project;
- exemption from property tax and land tax;
- reduced payroll-related taxes;
- VAT exemption;
- reimbursement of customs duties and VAT payable upon the importation of goods;
- exemption from the obligation to keep financial accounting, unless the participant’s annual income exceeds RUB 1bn (EUR 14.3m); and
- exemption from the payment of state duties for the issuance of work permits, invitations and visas for foreign employees.
In order to obtain the required status to operate in the Skolkovo innovation centre and benefit from these incentives, investors have to set up Russian companies to conduct research there and follow a special procedure.
Territories of advanced social and economic development
Taxpayers can benefit from specific incentives granted to residents of territories of advanced social and economic development (“TASEDs”) created in order to boost the development of the economy and attract foreign investment in those territories. Each TASED is established by a Decree of the Russian Government.
There are 19 TASEDs located in the Far East of Russia (e.g. Kamchatka, Khabarovsk) and in Yakutia (in the industrial park Kangalassy). To obtain the TASED resident status, legal entities and individual entrepreneurs must conclude an investment agreement with the regional authorities.
In 2019, new TASEDs were created in certain Russian regions including the Nizhny Novgorod, Samara, Sverdlovsk, Kurgan, Orenburg and Tomsk Regions.
TASED residents have a right to apply reduced corporate profits tax rate subject to conditions stipulated by the Tax Code and applicable regional regulations.
Free port of Vladivostok
The regime of the “free port of Vladivostok” has been introduced to the Russian legislation in 2015 in order to establish special status for a territory in Primorsky Krai for a renewable term of 70 years. Most of the provisions regulating the status of the free port and respective incentives took effect on 1 January 2016.
The legislation on the free port of Vladivostok (created for a renewable term expiring in 2085) allows legal entities and individuals having obtained the resident status to benefit from certain tax, customs and administrative benefits and incentives.
In order to obtain such resident status, the applicant must fulfil the following criteria:
- implementing a new investment project; and
- investing an amount of at least RUB 5m (EUR 71,500) in the project’s implementation (in the form of capital expenditures) within a period not exceeding three years as from the date when the investor obtained the resident status.
Legal entities or individual entrepreneurs satisfying the above conditions must (i) apply to the management company of the free port of Vladivostok (by submitting a set of supporting documents including, notably, the business plan of the investment project); and (ii) conclude an agreement on the conduct of the investment activity with the management company.
Incentives and benefits granted to the residents of the free port of Vladivostok include the following:
- tax: corporate profits tax at 0% (for a five-year period starting from the date on which the profits from activities in the free port were obtained) or 10% (for subsequent periods), a simplified system of VAT refund and reduced rates of social contributions (in cases when the resident is subject to the general taxation regime and its proceeds from business activities in the free port constitute at least 90% of the total amount of its proceeds);
- customs: possibility of benefiting from the customs regime of free customs zone;
- migration: a simplified procedure of entry into Russia for foreigners employed by the residents of the free port of Vladivostok.
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