Special Economic Zones & Major Implications on F.D.I. in Russia

Special Economic Zones & Major Implications on F.D.I. in Russia

The beginning of the year starts with the signing by Russian Prime Minister, Dmitry Medvedev, the Government Decree for the establishment of a new Special Economic Zone named ‘Center’ in the Voronezh region. According to the development plan of the region, engineering, transport and social infrastructure will all be significantly improved by the end of 2023.

This act follows on from the prioritized goal stated by Russian President, Vladimir Putin, in his speech to the Cabinet to not only attract investment, but to improve related regulations and to format favorable conditions for foreign as well as for national Russian investors.

As it stands, Russia has already made significant progress in this direction. According to the latest World Bank’s Ease of Doing Business global rankings, Russia has once again improved its performance, taking the 31st spot. Moreover, the country was noted among the countries that have made tremendous progress, improving more than three of the eight measured areas. This growth shall be exemplified further by the establishment of the new Special Economic Zone (SEZ).

It should be mentioned that the main legal act regulating SEZ in Russia is Special Economic Zone Law No.116-FZ enacted on July 22, 2005. According to this law, SEZ is an area indicated by the Russian Cabinet which offers a special regime of entrepreneurial activity and/or free custom zone to its residents.

Among the advantages enjoyed by investors in the SEZ, custom, tax, financial (for example, reduction of rent fee for the land) and administrative benefits (for example, simplification of registration procedure) shall be of utmost importance to potential investors.

Historically speaking, the first SEZs appeared in Russia in the end of 80-ies. Vyborg and Nahodka became pioneers in this sphere in 1989. However, in the last 10 years Russia has greatly increased its activity in this sphere and the SEZ ‘Center’ will be the 26th SEZ within the Russian territory.

In order to clarify further, it is important to identify that there are 4 types of SEZ:

Industrial (9 zones) – Aim of stimulating the production of high quality and competitive products;

Technological (6 zones) – Contributing to the development and implementation of scientific results and aimed at the development of high-tech industries;

Tourism (9 zones) – Eases the business activity for companies in the tourism sector and contributes to the development & use Russian natural healing resources;

Port (1 zone) – Tasked with stimulating the development and competitiveness of the Russian sea ports.

According to the Government Decree, the SEZ ‘Center’ will be that of the industrial type and it is planned to develop many industries including, the metallurgic production (with special attention afforded to the needs of aircraft construction), chemical, construction and food industries, as well as mechanical engineering, electro-chemical, oil and gas, shipbuilding, radio-electronic, pharmaceutical and medical industries.

It was further reported that six companies have already confirmed their intentions to invest in SEZ projects totaling more than 3.5 billion rubles.

Finally, according to the letter attached to the Government Decree, by the end of 2028 investment performance is projected to reach 9 billion rubles, with more than 1.4 thousand vacant job positions and revenue of over 75 billion rubles should come out.

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