06.12.05

President Putin signed Federal Law #116-FZ "On Special Economic Areas within the Russian Federation" on July 22, 2005. According to Article 2 of this law, special economic zones will be created on by the government and feature special tax regimes to develop the manufacturing and hi-tech sectors of the economy and promote the production of new product lines and the improvement of transport infrastructure.  These areas' special status will last no longer than 20 years, a period which cannot be prolonged.  

The legislation creates two types of economic areas: 

• Industrial zones, which will specialize in production, processing and sales;
• technology promotional, which will specialize in scientific and technical production and sales.

The law does not include mining operations and processing of iron and nonferrous scrap metal, metallurgical production, production and processing of excise goods, except for cars and motorbikes. 

The law also specifies another type of area – Tax Free Zones (TFZ), which give sellers the right to import and use foreign made goods within special economic zones without paying custom fees and VAT.  Additionally,  these goods are not subject to economic sanctions applied according to the law "On State Regulation of Foreign Trade Activity."  Russian-made goods within the TFZ are free from excise taxes and export custom fees.  If foreign-made goods imported into special economic zones are then exported to other parts of the Russian Federation, custom fees, VAT and excise taxes are then applied.   

Duties on goods exported from the special economic zones are paid according to the export custom regulations. The only exception here is the goods that were imported into SEA from abroad and are then re-exported - no VAT is applied to these goods.  However, standard documentation called for in Clause 165 of the RF Tax Code should be submitted.

Additionally, research expenses are recorded when incurred, which, in fact, decreases the tax base for the period when research was conducted and in the amount of actual expenses.

Assets will not be subjected to property taxes for five years, beginning at the moment of a company's registration.  This regulation covers only property, which is recoded on the balance sheet of a firm working in a special economic zone.  Interestingly, no limitations are put on the location of assets. 

Special tax concessions also cover profit taxes for residents of the industrial special economic zones:  Accelerated depreciation is allowed, as is the carrying forward of 100 percent of losses. 

Special tax breaks on the unified social tax are given to technology-promoting zones, where the labor-output ratio is high.  The maximum unified social tax rate is 14 percent, with a regressive scale, which, in fact, means paying only a part of obligatory pension insurance fees, as this fee is part of the unified social tax.