For the attention of: managers of companies in Eastern Siberia and companies of the federal and interregional levels operating in Eastern Siberia.
Pepeliaev Group advises of the progress of measures being implemented to develop Eastern Siberia as communicated by the President of Russia in his Address to the Federal Assembly.
On 12 December 2013, Russian President Vladimir Putin gave his annual address to the Federal Assembly, announcing a number of initiatives to develop Eastern Siberia, including Krasnoyarsk Krai and the Republic of Khakassia. These initiatives aim to:
- set up a preferential tax regime for new investment projects; and
- create a network of special areas of advanced economic growth with special conditions for setting up non-resource enterprises.
PG's comment. Taking into account the fact that the President’s Address to the Federal Assembly is a roadmap indicating how the country is to develop in the coming years, companies should start considering this information to plan their activities.
Tax benefits for new investment projects
Eastern Siberia, including Krasnoyarsk Krai and Khakassia, will enjoy a preferential tax regime in relation to profit tax and mineral extraction tax for new investment projects currently being implemented in the Far East.
This special tax regime has been introduced in 13 constituent entities of Russia, including the Republic of Tyva, Irkutsk Region and Amur Region, Kamchatka Krai, Primorsky Krai and Khabarovsk Krai, by virtue of Federal Law No. 267-FZ “On amending parts 1 and 2 of the Russian Tax Code with a view to fostering regional investment projects in the Far Eastern Federal District and individual constituent entities of the Russian Federation” dated 30 September 2013.
For instance, in relation to the entities involved in regional investment projects and registered as such participants, this law provides as follows:
the rate of the profit tax which is to be paid to the federal budget is set at 0% and applied over ten tax periods from the time when the first income is received from selling goods manufactured under the investment project, and
the rates of taxes to be paid to the budgets of the constituent entities of Russia and set by the law of such constituent entities should not exceed 10% over five tax periods from the time when the first income from selling the relevant goods is received, but no less than 10% during the following five tax periods.
As far as mineral extraction tax is concerned, Federal Law No. 267-FZ dated 30 September 2013 envisages special methods for calculating the index signifying to the area to be mined (iam). This index is implemented by a party involved in a regional investment project to extract minerals starting from the tax period in which the entity was registered as a party to regional investment projects. Over 120 tax periods1, the iam is deemed to be equal to:
- 0 during the first twenty-four tax periods;
- 0.2 between the 25th and the 48th tax period (inclusive);
- 0.4 between the 49th and the 72nd tax period (inclusive);
- 0.6 between the 73rd and the 96th tax period (inclusive);
- 0.8 between the 97th and the 120th tax period (inclusive);
- 1 in subsequent tax periods.
At the instruction of the Russian President, the necessary legislative changes should be introduced by 1 July 2014.
On 27 December 2013, a group of representatives brought in the relevant bill (419118-6) to be considered by the State Duma. This bill provides for the tax benefits to enter into force on 1 January 2014.
Territories of advanced economic growth
In his Address, the Russian President proposed that a network of special areas for advanced economic growth be planned and created in Eastern Siberia with special conditions for setting up non-resource enterprises.
For new enterprises located in such territories, the following should be ensured:
- a five-year holiday period in relation to the following taxes: profit tax, mineral extraction tax (excluding tax on the extraction of oil and gas), land tax and property tax;
- special insurance premium rates;
- conditions for carrying on business which would allow competition with the key business centres of the Asia Pacific region, including permission procedures for construction, connection to electricity networks, and customs clearance.
In compliance with the President's Address, it is necessary, by 1 July 2014, to determine the criteria for classing individual constituent entities of the Russian Federation in Eastern Siberia, including the Republic of Khakassia and Krasnoyarsk Krai, as areas for advanced economic growth and draw a list of such areas; by 1 November 2014, the relevant legislative amendments should be introduced.
PG's comment: The privileges that have been announced apply mostly to regional and local taxes and should therefore be guaranteed at the expense of regional and local budgets. In view of this, the regional authorities will be interested in substantially reducing the area in which such privileges apply. As a result, it is quite probable that only a small number of regional enterprises will enjoy the tax benefits.
In particular, according to Vedomosti (issue No. 232 dated 13 December 2013), it has been suggested that such territories be created in the Krasnoyarsk Krai for the space and nuclear industries in Zheleznogorsk; in the Irkutsk Region, two zones could be created: a Northern Siberian industrial zone (home to wood enterprises and a petrochemical cluster), and a Southern innovation zone (with pharmaceutical enterprises).
Help from your adviser
Taking advantage of our considerable experience of supporting investment projects, including those related to similar benefits in the Kaliningrad Region, and drawing on our Siberian Office in Krasnoyarsk, Pepeliaev Group's lawyers are ready to provide legal assistance on any matters connected with companies' plans to enjoy the benefits.