Russia Woos Venture Capital

by Tatiana Smolenskaya, Tax-News.com, Moscow

28 May 2010

President Dmitry Medvedev has addressed a forum in Gorky, organized by Rusnano Capital and the US-based American Business Association of Russian-speaking Professionals, for 22 visiting US venture capital investors in a bid to attract their interest in Russia's innovation policies.

Medvedev said that the venture capital market in Russia was poorly developed with only about USD2bn in funds under management, but Russia would like to facilitate the development of this business.

The Moscow Times reported a degree of scepticism among the venture capitalists, repeating an Interfax quote from David Kronfeld of Chicago-based JK&B Capital, that there were "a thousands of ways to steal your money in Russia". Reference was also made to the country's tax regulations and instances where the authorities had closed businesses under unclear circumstances, a prime example being hedge fund Hermitage Capital, whose Russian operations were terminated in 2005.

However, when it came to discussions on Viktor Vekselberg's Skolkovo project, the heavily incentivized "Russian Silicon Valley," attitudes were more positive. The executives met with Vekselberg, and there was talk of Cisco Systems Inc. and Nokia Oy joining the project.

Last month, Vekselberg revealed that Skolkovo will have its own special legal regime, which will be managed and funded by a non-profit making foundation rather than a city council. Companies will be exempt from income taxes on property, and have lower rates of social security contributions. Enterprises should be eligible for duty-free importation of equipment – or subsidies to compensate for duties. According to the draft terms, preferential tax treatment would be given for unspecified periods of up to 10 years, or until annual revenues reached RUB3bn (USD97.2m), during which time there could be zero taxes on income, land, transport, and no value-added tax.

Drew Guff, a co-founder of New York-based Siguler Guff & Co., announced at the meeting that the fund planned to invest USD250m in building digital infrastructure in Russia. He also commended Russia's 13% flat tax and said he hoped the Skolkovo project would be a true bridge between Russian technology, Russian ideas and global commercialization.

Nezavisimaya Gazeta quoted Chief Economist of Alfa-Bank, Natalya Orlova, who said: “The main issue is the lack of transparent procedures which would help western investors integrate into the Russian economy. It’s not a matter of trust. Systematic solutions are required, and the increase in transparency of procedures. Business in Russia has a lot of potential, so the interest of western investors is great; it just needs help to materialize."

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