In late May 2019, the State Duma of the Russian Federation passed a package of daft laws in the first reading, adopting the so-called SIC 2.0. Changes to the legislation on special investment contracts (SIC) have been under discussion since 2017. The business community cannot wait to see the passing of the new law that will change the conditions entitling companies to state support.

New regulatory developments are aimed at extending the scope of SICs, making the provisions of such contracts more specific and changing the procedure of executing and performing such contracts.

The most important of the changes to SICs that are being considered are as follows:

  • Industrial production in Russia must be preceded by the development of a technology that will be put to use in production and technological activity. Technology is understood to mean only such solutions that are protected as intellectual property. However, not every solution may be the subject matter of a SIC: the list of such solutions will be adopted by the government. For the time being, neither a particular list of such technology, nor the sphere in which they are to be applied has been put forward for discussion.

  • The group of parties to a SIC is being extended: now the Russian Federation must engage in SIC projects not only the constituent entities of the Russian Federation, but also municipal entities.

  • It is suggested that the share of investment from public entities be capped at 50% of the total capital investment in the project. Apart from this, the minimum investment requirement applicable to the investor will be lifted.

  • For information, former legislation did not provide for any restrictions on how the investment should be distributed among the SIC parties, but at the same time it set the minimum amount of the investor's own investment at RUB750 million.

  • The draft law contains a list of the investor's responsibilities, including the responsibility to develop a technology and procure intellectual rights to the intellectual property comprising the technology, to meet performance indicators (the production volume, minimum tax burden and number of jobs) and to maintain separate accounts in relation to assets relating to the implementation of the SIC.

  • The draft law suggests establishing a competitive tendering procedure for the execution of SIC through open or selective tendering. Now an invitation to a tender may be initiated not only by a public entity, but also by the investor itself.

  • The maximum term of a SIC is expected to be increased from the currently established 10 years to 15 years for projects with investments of up to RUB50 billion (net of VAT) and 20 years for investments of over RUB50 billion.

  • The SIC version as it is now proposed will incorporate a stabilisation clause, that is Russian legislation that comes into force after the execution of a SIC (except for industrial safety legislation) will not apply to the investor. The clause, however, will apply only on condition that it is so provided by the regulatory acts regulating such relationships and to such extent as may be established.

  • Particular attention will be given to the tax treatment for investors under a SIC.

    First, the profits tax concession will apply through the entire period of the SIC implementation, without the former restriction of up to 2025.

    Second, the profits tax zero rate will apply not only when the investor's profits from the implementation of the SIC account for less than 90% of the aggregate profit, but also when the investor maintains tax accounts separate from its other activities.

    Third, the regional tax rate may be reduced to zero after the investment begins to yield profit.

  • The SIC 2.0 programme is expected to last until 31 December 2030.

    The SIC 2.0 draft laws will be finalised before the end of June 2019 and will then be ready for the second reading in the State Duma of the Russian Federation.