Russia To Open Special Economic Zones

by Tatiana Smolenskaya, Tax-News.com, Moscow

15 March 2005

The Russian government last week approved a plan to set up special economic zones for manufacturing companies and research centres. Economic and Trade Minister German Gref said that the legislation would be submitted to the Duma within a matter of days.

'At least 10 Russian and foreign firms are waiting for this law and are ready to invest in 2006', said Gref. But Prime Minister Mikhail Fradkov warned that the zones, which will benefit from tax concessions, and will be allowed to import materials free of duty and VAT, should not be abused. Companies setting up in the zones will have to have charter capital of not less than 10 million euros, and will not be allowed to operate elsewhere in Russia.

Fradkov was alluding to the widespread use of a previous generation of tax-free zones to channel large volumes of metal processing, oil and gas refining and other industrial activity through the zones in order to gain tax advantages. Although the techniques used were according to the letter of the law, the government has since attacked such practices, most notably in the case of Yukos. The enormous retroactive tax claims imposed on the company largely relate to its activities in tax-privileged zones. So companies probably don't need reminding to be careful in any new zones that are set up!

Gref said that the new zones would be built with new infrastructure on virgin land, and he expected companies to open up in the zones in 2007. He said that a new federal agency would be set up to manage the zones, which would have much more limited powers of inspection and interference than existing regulators.

Recommended