FAR EAST: TAX BENEFITS FOR INVESTMENT PROJECTS (Overview of the Federal law of the Russian Federation № 267-FZ as of 30.09.2013)
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Denis Savin, Associate
Law firm “Bazarov, Golikov & partners”
A new Federal Law № 267-FZ was introduced September 2013. The main passage is creating a favorable tax treatment for the investment activities in the Far East and in some of the bordering subjects.
The Law will enter into force on 1 January 2014. It stipulates some tax benefits for the investors planning to implement their projects in the Far Eastern Federal District, the Zabaikalye Territory, the Buryatia Republic and Irkutsk region.
The Law establishes reduced profits tax rates as well as a right to use a special decreasing coefficient to the royalty and production tax rate.
During 10 years starting from the date the first income is generated from an investment project 0% tax rate is to be applied for the profits tax part ascribed to the Federal budget of the Russian Federation. Federal subjects of the Russian Federation are also entitled to fix a reduced tax rate related to the profits tax ascribed to the budgets of the subjects: not more than 10% during the first 5 years and not less than 10% during the following 5 years starting from the date the first income is generated.
According to Russian tax legislation the general profits tax rate is 20%. It is divided between the levels of the budget: 2% is going to the Federal budget of the Russian Federation and 18% — to the budgets of the subjects. Thus, a profits tax rate for the investor would amount to 0-10% during first 5 years of the investment project implementation and to 10-18% during the following 5 years (depending on the rates to be stipulated by the corresponding laws of the subjects).
Special decreasing coefficients applied to the royalty and production tax rates are established for a number of the mineral products (including ferrous and non-ferrous metal ores, gold, coal, etc.). They are to be used starting from the period of beneficial profits tax rates application as follows:
— during first 2 years of investment project implementation – a coefficient equal to 0;
— from 2 to 4 years – a coefficient equal to 0,2;
— from 4 to 6 years – a coefficient equal to 0,4;
— from 6 to 8 years – a coefficient equal to 0,6;
— from 8 to 10 years – a coefficient equal to 0,8;
— over 10 years – a coefficient is not applied (equal to 1).
In order to become a regional investment project participant and to benefit from the mentioned preferential tax treatment an investor should implement such project totally in the territory of one of the subjects listed in the Law or in the territory of several subjects in case a project involves the goods production in the framework of a unified technological process held in the territory of several subjects at a time. Herewith the amount of the investments should constitute at least 50 million RUR (approximately US$ 1,5 million) for a project taking up to three years and at least 500 million RUR (approximately US$ 15,4 million) for a five-years project.
At that, the objective of a regional investment project should be the production of the goods. Such a project could not aim at the production and transportation of oil and gas or at the production of goods levied by excise duties (except the production of motor vehicles and motorcycles).
Moreover, a regional investment project participant should be registered as a legal entity in the territory of one of the subjects provided by the Law and should not have separate subdivisions outside that territory. As for a land lot which is planned to be used for investment project implementation – it should be owned by the investor or should be rented for a term lasting at least until 1 January, 2024.