We are continuing our series of articles discussing the major benefits your business may receive from the Special Economic Zones (SEZs) of the CIS countries. Last time, we presented an overview for Belarus’ SEZs (please scroll to the bottom to see our previous articles), moving towards the east we reach our next destination – Russia.
The country provides investors a choice of 28 SEZs divided betweenfour different groups(see chart below).
SEZs are created for a period of 49-years, offering investors privileges on both national (federal) and regional levels.
(a) Tax Cuts
** For imports, exports and transactions between SEZ residents for certain goods placed under a Free Customs Zone (FCZ).
***These are taxes of regional and local level therefore the specific period of tax holidays depends on the regional and local regulations where the SEZ is located.
Note: The above table presents general information and certain SEZ may prescribe different rates or have other substantial requirements for residents to enjoy such benefits.
Along with aforementioned national level benefits most SEZ residents also enjoy local level preferential treatment. This means further tax cuts and tax holidays for the regional and local tax share of 17% (profit, property, land and transport taxes).
(b) Exemptions from Custom Duties
Residents within IPZs, TIZs and PZs may enjoy the Free Customs Zoneregime to be exempted from the customs duties and VAT for their goods. These zones also provide guarantees from prohibitions and restrictions on imports of an economic nature.
Investors would have to bear import duties only where it moves commodities to the internal market of the Eurasian Custom Union inclusive of the five countries of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.At the same time goods will be free of custom duties for circulation within the Eurasian Custom Union.
Note: Some SEZs may require imported commodities to be used in a specific way in order to enjoy the customs duties exemption.
(c) Developed Infrastructure
One of the major expense items that shall be considered by investors entering the Russian market is infrastructure development (heat, electricity, gas, water, telecommunications, etc.). SEZs generally take over these expenses from the investoras an initial procedure of their establishment foresees infrastructure construction by the government. This is especially beneficial for investors in remote & central regions.
(d) Reduced Expenses and Ease in Renting and Acquisition of Land
SEZ residents can avoid the often time consuming tender procedure (2-3 months) and receive decreased renting fees. SEZ residents generally also get procedural and price preferences if they decide to acquire a plot which had been previously rented.
The government is currently discussing the draft law that will harmonize the regulatory regime for IPZs, TIZs and TRZs and provide decreased social payments ratesto investors that were in place before 2020. The draft foresees a cut for social payments during first 10 years as follows:
- Pension Fund: 8% instead of 22% out of SEZ;
- Social Insurance Fund: 2% instead of 2.9% out of SEZ (1.8% for foreign employees, except highly qualified employees);
- Health Insurance Fund: 4% instead of 5.1% out of SEZ.
The regulatory regimes among the different SEZs continue to be highly diverse. Therefore, before registering your company within one of the SEZs it is highly recommended to perform an assessment in order to understand which of them has the most preferential treatment for your investment project.
If you are looking to establish a business in a SEZ or in Russia, we at D’Andrea & Partners Legal Counsel, have a team of experts to advise you.