The conclusion of special investment contracts was made possible in 2015 by the Federal Law on Industrial Policy. Special investment contracts can form the basis of investment incentives to promote industrial development.
While foreign investors can conclude special investment contracts, contracts will be primarily concluded with foreign investors that manufacture products not manufactured in Russia. Whether such products are already being manufactured locally will be determined in accordance with Resolution 719 on the Criteria for Classifying Industrial Products as Having No Equivalent Manufactured in the Russian Federation, dated July 17 2015. The conclusion of special investment contracts with respect to other products is not excluded.
Several foreign companies and the responsible state authorities – especially the Ministry of Industry and Trade – have already negotiated the conclusion of special investment contracts. In these negotiations, the authorities have been competent and flexible interlocutors.
In a special investment contract an investor that is committed to establishing, modernising or operating a production facility in Russia will be granted certain benefits (eg, tax and customs benefits) by the Russian Federation or the federal states of the Russian Federation. The affected municipality may also be included in the contract.
According to Resolution 708 on Special Investment Contracts for Selected Industries, dated July 16 2015, the minimum investment for which appropriate documentary evidence (eg, a loan agreement) must be provided is Rb750 million (approximately €10 million).
Special investment contracts can be concluded for almost all production sectors, excluding the production of alcohol-containing foods and alcohol and tobacco products. The term of a special investment contract may not exceed 10 years.
The following guarantees are given to the investor for the term of a special investment contract:
- If after conclusion of the contract prohibitions or restrictions on its performance are established or additional mandatory requirements for the construction or operation of the production facility are introduced, these will not be applied to the investor.
- In accordance with the legislation on tax and other charges, the total amount of taxes and other charges payable will not increase.
The investor must apply to the responsible authority for the conclusion of a special investment contract (the Ministry of Industry and Trade, if the contract is being concluded with the Russian Federation). The application must be accompanied by documents evidencing the planned investment amount, a list of requested support and a list of the investor's liabilities. In addition, it must include detailed information on the planned production activities, including:
- the characteristics of the industrial production;
- a list of measures for the investment project;
- the investment amount;
- the results (indicators) to be achieved in the production (including the sales at the end of each calendar year and at the end of the contract);
- a list of imported improved technologies for environmental protection, if applicable;
- the total amount of taxes accruing on expiry of the contract;
- the proportion of non-Russian materials used; and
- the number of jobs to be created as part of the contract.
If the investor intends to manufacture products that have no equivalent in the Russian Federation (as will frequently be the case with foreign investors), the investor must prove this with appropriate documentation.
Within 30 business days, the Ministry of Industry and Trade will send the application with a preliminary opinion to an interdepartmental commission to review whether the conclusion of a special investment contract is possible. The interdepartmental commission will make a decision within a further 60 business days and inform the responsible authority accordingly. If the decision is positive, a draft of the special investment contract will be attached to the decision. Within 10 business days of receiving the draft, the investor must sign the contract, refuse to sign or suggest changes. Any amendments must be discussed within a further 10 business days. If the investor does not respond to the decision within 20 business days, refusal to sign will be assumed.(1)
Resolution 708 provides the basis for the content of a special investment contract. The sample contract provides for the following provisions:
- the investor's obligation to carry out the planned investment project;
- the public contractor's obligation to carry out specific support measures;
- that the fulfilment of the contract will be governed by the investor's obligation to generate reports on the achievement of key performance indicators and the relevant state authority's obligation to prepare audit reports;
- that the contract can be amended in the event of a change to essential conditions for the investment project's implementation;
- that the contract will be terminated by a court decision in the event of a breach of duties by the investor or public contractor;
- the investor's obligations in the event of termination of the contract based on the investor's breach of duty (in particular, to pay damages and return the incentives received); and
- the public contractor's obligation to return the incentives received in the event of termination of the contract based on the contractor's breach of duty (in particular, to pay damages and a contractual penalty).
The sample contract contains a framework that must be completed with the details of the investor's planned project. Thus, there is considerable scope to design each individual special investment contract.
The willingness of the responsible state authorities to grant incentives depend primarily on the extent of their interest in the investment project. If the interest is great, the state authority can grant extensive tax and customs relief and, potentially, necessary legislative amendments. The following obligations regarding public tendering procedures are also possible:
- product approvals;
- equal treatment of the products with Russian products; and
- approval of the investor as sole bidder if no equivalent product is manufactured in Russia.
Even penalties imposed on the public contracting party may be agreed in the event of breaches of duty. However, the amount of the penalties cannot exceed the total amount of the investor's expenditure caused by the loss of public incentives.
For further information on this topic please contact Thomas Mundry or Stefan W Weber at Noerr by telephone (+7 495 799 56 96) or email (email@example.com or firstname.lastname@example.org). The Noerr website can be accessed at www.noerr.com.
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