The Kaliningrad Special economic zone represents one of the best investment opportunities in Russia today with very low labor tax, reduced profit tax and sometimes full exemption and multiple start up opportunities in Russia’s gateway to Europe.
This platform for entrepreneurship
appeared in 2018, and it aimed to create a fiscal haven to promote the return
of capital to Russia. However, the legislation in Russia is not discriminatory,
so the same conditions designed to draw back Russian capital apply to foreign
companies wishing to enter the jurisdiction of these special administrative
regions.
Some mistakes made during Russia's transition from a communist to a market economy during the last decade of the 20th century led the most significant Russian companies down the path of complex offshore schemes. The jurisdictions of the UK, USA, and the island of Cyprus were the preferred ones for Russian business.
The pressure that emerged
in recent years on these jurisdictions began to generate problems in large
Russian companies and, as a result, difficulties in the country's economy.
Responding to this challenge, Russia has met with the companies and provided
opportunities to return to the Russian jurisdiction ensuring the preservation
of those benefits and business conditions presented by offshore companies. The
first residents of special administrative areas were the companies benefiting
from the aluminum giant En+group, whose turnover is USD 15 300 000 000.
According to experts, by moving from the Island of Jersey to the jurisdiction
of the Kalinigrad Special Administrative Region, En+group improved its
profitability by achieving lower tax rates.
According to the legislation in force, two
types of structures can operate in the Russian special administrative regions:
Commercial companies previously operating
abroad, credit organizations, non-credit financial organizations, payment
system operators and payment infrastructure service operators;
Funds created for the ownership and
management of assets or social functions of a non-profit nature.
Trading companies obtain the status of
international companies and are given preferential tax treatment. These
companies are taxed 0 % on income in the form of dividends, provided that on
the day the payment is executed, it has held these dividends for one year and
has at least 15 % of the deposit in the share capital of the organization that
pays the dividends or has deposit receipts that qualify for them. Also, these
businesses are taxed 5 % on income received by foreign persons from shares of
international holdings, which, on the date of payment of dividends, are public
companies. Besides, residents of the Special Administrative Regions are not
subject to taxation on profits earned outside Russia or to tax on transactions
involving shares or equity interests in Russian or foreign organizations.
Only companies that have been registered
before 01/01/2018 in a FATF adherent state or a member of the Council of Europe
Committee of Experts on the Evaluation of Anti-Money Laundering Measures and
the Financing of Terrorism, and that have began operating by 1 January 2017,
may exercise their right to the status of residents of the special
administrative regions. Re-domiciliation and then incorporation is obtained
when the resident status is given. The additional requirements include the presence
of a division in Russia, through which investments of a total of 50 million
roubles (approximately USD 800 000) are made in the Russian economy over six
months.
At the moment, the conditions for entering
the special administrative zones are quite demanding. Still, the Ministry of
Economy, in cooperation with foreign and Russian companies, has already
prepared three packages of amendments to the legislation to liberalize the
requirements and increase the competitiveness of the special administrative areas.
For example, amendments have already been adopted, allowing residents of the special administrative regions not to disclose to third parties data about beneficiaries or persons controlling companies. Only the administration company of the Special Administrative Region, the control bodies of the Russian Federation, and the courts may obtain such information. Resident companies are exempt from exchange control and may maintain the par value of their shares in foreign currency and pay dividends following international financial reporting standards (IFRS). The geography of the jurisdictions from which re-domiciliation can take place through the countries of the Caribbean Anti-Money Laundering Task Force (CFATF) has been expanded. These countries include the British Virgin Islands (BVI), St. Kitts and Nevis, and the Cayman Islands. After their re-domiciliation process, the companies have had the opportunity to return to the protection of corporate law in the Russian jurisdiction, and have gained the possibility to resolve legal and commercial disputes in international arbitration courts.
As for the second form of residence,
international funds, unfortunately, little is known yet, since the law on its
registration procedure was adopted on 25 November. According to the text of the
law, the book value of the assets of the fund's creator, including those
abroad, must be at least 500 million rubles (USD 8 000 000). The founders of
the fund cannot be members of it or have membership rights. Nonetheless, they
can be commercial companies resident in special administrative areas, and
existing funds in order of incorporation. The funds will not be obliged to
report publicly on their activities. Ownership and management of assets will
not be considered a business activity. For the time being, it is known that the
Russian giant Yandex, a leader in the development and implementation of
artificial intelligence and unscrewed transport, has expressed its desire to
take advantage of this opportunity and register in the Special Administrative
Region.
We can see that, at the moment, the
Russian offshore companies are still forming their base. Still, even at this
initial stage they already have certain competitive advantages, the main one
being that their aim is not to obtain occasional income, but that they are
created to solve problems in the real sector of the Russian economy. This
connection is a guarantee of their sustainability against the influence of the
international situation.
Special administrative regions are created
in Russia in two areas. On the island of Oktyabrsky in the westernmost part of
Russia, the Kaliningrad region, and on the eastern outskirts of Russia, the
island of Russky in Primorsky territory. It should be noted that Oktyabrsky
Island is closer to Warsaw and Berlin than to Moscow, and the distance from
Russky Island to Seoul, Tokyo, or Hong Kong is ten times less than to the
Russian capital. In both cases, you should not be concerned about the word
"island". Both Russky Island and Oktyabrsky Island are located in
Russian cities with well-developed transport and urban infrastructure,
Vladivostok and Kaliningrad, and are separated from the mainland by very small
straits crossed by road traffic bridges. On Russky Island are the campuses and
buildings of the Far East University. Oktyabrsky Island is a booming urban area
where we can find the football stadium that hosted the FIFA World Cup.
The territories of the special
administrative regions coincide with other platforms for entrepreneurship.
Russky Island is part of the territory of the Vladivostok free port, and
Oktyabrsky Island is part of a special economic zone. Moreover, residents of
the special administrative regions can carry out activities on the territory of
Russia and take advantage of the benefits provided by the special economic
zones to invest in the real sector of the economy. Contact us
$170,000
$1,400,000
$350,000
$395,000
$165,000
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