Pepeliaev Group advises that 4 August 2023 saw the signing by the Russian President and publication of the Federal LawFederal Law No. 448-FZ “On amending the Federal Law ‘On special economic zones’ and individual items of Russian legislation” dated 4 August 2023.
, which introduces numerous amendments to the regulation of special economic zones in Russia.

Most of the amendments are coming into effect starting from 1 September 2023.

Let us consider the amendments in more detail.

I. Setting up and managing a special economic zone (SEZ)

1. The approach has been changed to determining a management company

Before the amendments were made, such company had to be predominantly a specially founded joint-stock company owned by the state. Now, a management company may be any business entity which has entered with the state authorities into an agreement for the creation of a SEZ.

The business entity must meet a number of requirements, such as: have no outstanding tax obligations; and foreign investors should not significantly influence the decision-making of the company in the course of its operations, among others.

2. Supervisory and expert advisory boards are being eliminated

Previously, when a SEZ resident performed any actions (such as assessed business plans or adopted resolutions for an agreement to be concluded with it, and so on), its management bodies were required to seek an opinion of the expert advisory board. No such opinion is required now.

3. The procedure has been changed for an agreement for the creation of a SEZ to be concluded

Now, to hire a management company and enter into a relevant agreement with it, an agreement for the creation of a SEZ must be signed first.

According to the new rules, if a resolution is passed to engage a management company, it may become a party to an agreement for the creation of a SEZ and simultaneously sign an agreement for managing the SEZ.

4. It is prohibited to set up a SEZ in the territory of an innovative research and technology centre, a priority development area (PDA), or in municipalities where the Free Port of Vladivostok or a territorial development zone have been set up, or within the boundaries of specially protected natural territories or their protected areas.

5. The North Caucasus Federal District receives a number of additional benefits

Thus, it has been permitted that no territory planning documents and no records of previously approved territory planning documents are required for the purpose of preparing documents and having them approved in relation to the planning of the territory of a SEZ which has been created within this district.

All documents pertaining to the planning of a SEZ will be approved without any public consultations or public hearings being held.

6. A new ground has appeared for an application to be filed for the area of a SEZ to be expanded

Such a ground will be an over 50% workload of the facilities of a SEZ’s utility, transport and other infrastructure, and also if more than 50% of the total area of the land plots which are within the boundaries of a SEZ and are intended for residents have actually been made available to them.

7. A new ground has been added for liquidating a SEZ before its term expires

If the Russian Ministry of Economic Development finds for five consecutive years that a SEZ has been functioning ineffectively, the SEZ will be liquidated. An assessment as to whether a SEZ is effective will be carried out not earlier than two years after it has been created.

II. Obtaining the status of a resident

1. The list has been changed of documents that are required for an agreement to be concluded to carry out activity

Instead of a business plan, a potential resident will be asked to provide a data sheet for an investment project and its financial model according to a form to be established by the Russian Government. Moreover, a certificate must be submitted of the obligation to pay taxes being fulfilled.

2. The timeframe has been changed for signing an agreement to carry out activity

The timeframe will be 15 business days after all necessary documents have been received.

3. An individual entrepreneur may become a resident of an industrial and manufacturing SEZ

4. Residents will be allowed to buy out land plots that they rent

This will be possible if conditions are met of an agreement to carry out activity.

III. Losing the status of a resident

1. A new material violation has been added of an agreement to carry out activity by a resident

Such ground will include a bankruptcy procedure being introduced against a SEZ resident under Federal Law No. 127-FZ “On insolvency (bankruptcy)” dated 26 October 2002.

2. A fine will have to be paid if an agreement is terminated before its term or if a resident loses its status

The amount of the fine will increase by the amount of the taxes that have not been paid by the taxpayer who is a SEZ resident or by a person who has lost the status of a resident in connection with the tax benefits being granted to it that are provided for by the Russian legislation on taxes and levies.

A competent state authority or a management company will file a claim for the recovery of the fine.

Pepeliaev Group's comment

It is not quite clear what the legislature had in mind: to have taxes restored which have not been paid, or a method for calculating the fine. If this concerns the restoration of taxes, then the question arises of why this provision has not been enshrined in the Russian Tax Code (the ‘Tax Code’) and why no obligation has been mentioned to pay a penalty. If it is a question of the method for calculating the fine, as follows from the literal interpretation of the legal provision, will tax authorities be involved in the calculation of such fine? This begs another question concerning the procedure for collecting such fines or contesting them: will the general court claims procedure be used or will it be adjusted by the specific aspects for which Chapter 24 of the Russian Commercial Procedure Code provides?

IV. Guarantees against adverse changes in statutory instruments

1. The stabilisation clause has been added

It is being established that provisions that worsen the conditions for carrying out activity for which an agreement to carry out business activities provides as compared with the conditions determined at the time when the agreement was concluded will not apply to a SEZ resident within 3 years after the regulation (resolution) comes into effect. An example of such a provision is it extends the timeframes or the amount of procedures required to implement an investment project or the size of payments due from the resident for the purpose of implementing the project, among others.

Such statutory instruments include regulations relating to land and town-planning legislation.

2. Fiscal stabilisation has ceased

The current wording of the law provides for statutory instruments concerning taxes and levies that worsen the position of taxpayers who are SEZ residents not to apply during the term of the agreement to carry out business activities in the zone concerned.

The operation of this stabilisation clause has already encountered difficulties in practice because the relevant guarantee was enshrined in the sectoral law rather than in the Tax Code.

Starting from next year, the fiscal stabilisation clause for SEZ residents which has been provided for in the sectoral law will cease to have effect. It is being stipulated that provisions of tax statutory instruments will apply to a SEZ resident by reference to specific aspects established by the Tax Code. The Code for now does not provide for stabilisation guarantees for SEZ residents.

What to think about and what to do

We recommend that companies that intend to do business in a SEZ go through the amendments to the legislation and take those into account when they plan and carry out their business activities.

Help from your adviser

Pepeliaev Group’s lawyers have vast experience in advising on SEZ-related matters and are ready to assist you with handling issues that may arise in connection with the new and current regulation of SEZs.

To keep up with changes in legislation and practices relating to special tax regimes, please follow our bulletin “SpetsInvestRegimes” on the Telegram channel.