Russia: New corporate profits tax incentives for industrial investment projects in Russia
As part of implementing Federal Law No. 488-FZ, dated December 31 2014, "On the Industrial Policy of the Russian Federation" (the 'Industrial Law'), the Russian government has established a procedure for entering into special investment contracts that will apply to certain industries. This procedure is specified in Resolution No. 708, dated July 16 2015 (the 'Government Resolution'). In addition, amendments to the Tax Code of the Russian Federation to establish rules for granting tax concessions (Federal Law No. 144-FZ, dated May 23 2016, "On Amendments to Parts One and Two of the Tax Code" (the 'Tax Law on Amendments') were adopted.
The Industrial Law and the consecutive statutory acts provide significant incentives to those investing in Russia and effectively introduces a one-stop shop service for obtaining access to these incentives.
The Industrial Law and the Tax Law on Amendments provide significant tax concessions (effective from January 1 2017) to investors, including:
A reduced corporate profits tax (CPT) rate made up of two parts: a zero tax rate on part paid to the federal budget, and a reduced rate on the part paid to the budgets of the constituent entities of the Russian Federation, with the possibility to reduce to zero;
A special increased ratio on the depreciation rate for assets manufactured in accordance with the terms and conditions of the special investment contract; and
Guarantees that the incentives will remain in effect for the duration of the special investment contract.
In addition, there is an option for subsidies to be provided with concessions from the federal budget, the budgets of the constituent entities of the Russian Federation, or from municipal budgets, in accordance with the rules established in budgetary legislation.
To be eligible for the incentives, an investor should provide the authorised body with:
Documents confirming that the investment amount is not less than RUB750 million ($11.6 million) and is for the establishment of a new production facility or for the upgrading of an existing one;
The proposed list of obligations that the investor will accept and that the investor understands other parties will accept, information on the specifications of the industrial goods to be produced, key performance indicators to be achieved, the volume of goods to be manufactured, the forecast amount of annual tax payments, the proportion of the cost of work to complete parts of foreign origin used, the number of workplaces created, and others; and
The list of incentive measures the investor proposes to include in the special investment contract.
The contract may also include the procedure by which the investor will report on implementation of the commitments agreed and on the other terms and conditions of the contract.
The contract is for a maximum period of 10 years. Reduced tax rates apply before expiry of the contract, but cannot remain in force after 2025.
If the special investment contract is terminated due to non-performance or improper performance, the investor should offset the costs to the disadvantage of the budgets, and include the amount of unpaid tax due (as allowed by the granted tax concessions).
Alexander Grinko (firstname.lastname@example.org), Moscow
KPMG in Russia and the CIS
Tel: +7 (495) 937 44 77