The effective customs legislation of the Customs Union of Russia, Belarus and Kazakhstan (Customs Union) envisages, in particular, the following customs benefits for foreign investors which would like to localize manufacture of goods in Russia:
- the import customs duty concession in respect to the goods imported as in-kind charter capital contribution of a foreign investor into the charter capital of a Russian legal entity;
- the import VAT concession in respect to the technological equipment, its components and spare parts, the analogues of which are not produced in the Russian Federation;
- the import customs duty concession in respect to (1) the technological equipment, its components and spare parts, as well as (2) raw materials and components, imported for the exclusive use on the territory of the state-member of the Customs Union in the frames of implementation of the investment project, falling under the type of the priority activity (sector of economics) of the state-member of the Customs Union in accordance with the legislation of such state-member of the Customs Union;
- the exemption from import customs duty and taxes provided by the customs procedure of Free Customs Zone;
- the exemptions from import customs payments provided by the customs procedures of Processing on the customs territory and Processing for internal consumption.
Below we provided brief comments on each of the customs benefits.
(1) Customs duty concession for the goods imported as an in-kind charter capital contribution of a foreign investor
The import customs duties concession may be provided under the condition that the goods refer to the main production assets (e.g. production equipment), are not be excisable goods (e.g. passenger motor vehicles) and are imported within the time period of the charter capital formation. If all these conditions may be met, the importer may enjoy full exemption from import customs duty.
The main disadvantage of this customs concession is the complicated procedure involved in the importation of the goods as in-kind charter capital contribution. These complications are caused by significant management and administrative efforts to be involved, by the significant time frame required for implementation. The import of the goods as an in-kind contribution to the charter capital and within the period of charter capital formation should be duly documented. The provision of the security for the customs payments for the period of the charter capital formation may be required under the placement of the imported goods under the customs procedure. The importer which enjoys the customs concession should comply with the restrictions on usage and disposal of the goods within 5 year period since the date, when the goods were released by the customs authorities. During this 5 years period if the goods needs to be repaired, the respective customs formalities may be required to be performed in respect of this equipment and its parts which are out of order. If the goods are subject for sale or lease to the third person or in case of withdrawal of the foreign investor from the founders (participants) of the importer during the above 5 years period, the customs duties that were exempt should be paid by the importer.
Please note that the effective Customs Tariff of the Customs Union envisages zero import customs duty rates in respect to majority of types of technological equipment. The rate of import customs duty depends on the classification code applied to the equipment according to the Commodity Nomenclature of the Foreign Trade Activity. Therefore, it is advisable to specify the classification codes under which the particular equipment should be classified and the possibility to apply these codes taken into account its shipping schedule, including by obtaining the preliminary decision on classification, before making the decision on application of the considered customs concessions.
(2) Import VAT concession for the technological equipment, its components and spare parts, the analogues of which are not produced in the Russian Federation
This concession may be applied in respect to the types of the equipment, included into the List approved by the Resolution of the Government of the Russian Federation dated 30 April 2009 № 372. If the respective type of the equipment is not included into this List the interested person may initiate the procedure of amending the List.
If the equipment is shipped into Russia in disassembled mode, from the practical perspective for the purpose to enjoy this VAT concession it is advisable to obtain the preliminary classification decision which may be issued by the Federal Customs Service of Russia or its regional customs departments.
(3) Investment project
Customs legislation of the Customs Union envisages the import customs duty concession in respect to the following goods:
“The technological equipment, including components and spare parts to it, raw materials and/or materials, imported for the use on the territory of the states-members of the Customs Union in the frames of implementation of the investment project, which correspond to the priority type of activity (sector of economics) of the states-members of the Customs Union in accordance with the legislation of such states-members of the Customs Union.”
The indicated concession is rendered with respect to the raw materials and/or materials, if such raw materials and/or materials are not produced in the states-members of the Customs Union or if the materials or if raw materials and/or materials, produced in the state-members of the Customs Union do not correspond to the technical characteristics of the investment project applied.
Please note that currently this concession is not applied in the Russian Federation (such exemptions are applied in Belarus and Kazakhstan only). Consequently, in Russia there are no normative acts, which determine the procedure of rendering the indicated exemptions.
The perspective of application of such exemptions in Russia is not clear. There is no direct prohibition or clear guarantees that such exemptions will not be applied in Russia. At the same time following the Decision of the Court of the Eurasian Economic Community on application of this customs concession the Secretariat of the Eurasian Economic Commission should prepare the general rules of enjoying the tariff concession in the Customs Union, including the procedure of provision of the concessions for the importation of the goods in the frames of realization of the investment projects. Based on the above it is recommended monitoring the situation in question and if following the resolution of the Eurasian Economic Commission to be issued the possibility to apply this customs concession in Russia arises, to try to implement it for the respective projects.
(4) Special Economic Zones
Four Special Economic Zones (the “SEZ”) are being established in Lipetsk oblast, Republic of Tatarstan, Samara oblast and Sverdlovsk Oblast in Russia. Besides, tax benefits, these SEZs envisage the possibility of applying the customs procedure of a free customs zone. The goods (i.e. the technological equipment, its components and spare parts, required for the manufacturing process as well as raw materials and components) customs cleared under this customs procedure may be used within the territory of SEZ without making import customs duties and VAT and without the application of the none-tariff measures. No export customs duty should be paid in respect to the products manufactured from the imported components. If such products are released for free circulation the import customs duties and taxes to be paid may be calculated based on the rates related to either the imported components or to the manufactured products based on the choice of the manufacturer provided that the respective criteria for processing and identification requirements are met.
To enjoy the above customs benefits the Russian legal entity should be registered in the respective SEZ and it cannot have a branch outside SEZ. The resident performs its activity in accordance with the Agreement on the Production Activity (production and/or processing of the goods (products) and their sales) which should be concluded with the Ministry of Economic Development of Russia. The resident of the special economic zone is obliged to perform capital investments in rubles at the amount, which is equivalent to USD 4,5 million, at least 1,5 million of which should be invested within the first year since the date of signature of the indicated Agreement.
(5) Customs procedures of Processing on customs territory and Processing for internal consumption
The customs procedure of Processing on Customs Territory (inward processing) provides for full exemption from import customs duties and taxes levied on the imported goods, provided that the goods produced from the imported goods (the Processed products) are exported from the customs territory of the Customs Union and other conditions are met.
The Custom procedure of Processing for Internal Consumption stipulates that the imported goods are used for the refinery (processing) operations without making import customs duty. The Processed products should be released for free circulation on the customs territory of the Customs Union with making import customs duties following the rates, applicable to the Processed products. Consequently, in cases, where the customs duty rate with respect to the Processed products is zero, the application of the customs procedure of the Processing for internal consumption allows to decrease the import customs duty expenses significantly.
However, this customs procedure may be applied only in respect to the goods which are included into the List approved by the Government of the Russian Federation. The effective Resolution of the Government № 565 dd. July 12, 2011 envisages the list of components required for assembling units of passenger cars and train. Therefore, for the purpose to enjoy it, the respective amendment should be introduced into the Resolution of the Government. The maximum period of Processing of the goods for Internal Consumption is equal to 1 year since the date, when the first shipment of goods was placed under the customs procedure. The Commission of the Customs Union may establish a longer or a shorter period for separate types of goods. Special permission should be obtained and reporting should be provided to the customs authorities for applying this customs procedure.
Please also note that products manufactured in Russia, towing to the creation of the Customs Union may be supplied to Belarus and Kazakhstan without the need for any customs formalities. If such products are supplied to other CIS countries (e.g. Ukraine, Moldova, Uzbekistan, Kirgizstan and etc.) tariff preferences (i.e. full exemption from import customs duties) may be applied in the respective CIS country in respect to them, subject to compliance with respective conditions (for example, the resident rule, direct supply rule, criteria for processing, certificate of origin ST-1, etc.).