1. Background

The initial wording of Law No. 116-FZ dated 22 July 2005 “On special economic zones in the Russian Federation” (the “SEZ Law”) provided that items of legislation on taxes and levies that worsen the position of taxpayers that are residents of special economic zones ("SEZs") do not apply during the term of the agreement on conducting business in such a zone (article 38 of Law No. 116-FZ).

Federal Law No. 448-FZ dated 4 August 2023 extensively amended the SEZ Law. Among other things it repeals, starting from 1 January 2024, article 38 of the Law, which provides guarantees to residents of SEZs ("SEZ residents") protecting them from unfavourable changes to Russian legislation on taxes and levies.

At the same time, the SEZ Law is supplemented with article 38.1(6) whereby the provisions of any items of tax legislation apply to a SEZ resident taking account of the specifics established in the Tax Code.

We note that, before the Federal Law was adopted, the Tax Code had not provided for any stabilisation guarantees for SEZ residents, which created considerable risks for SEZ residents, including active ones.

2. The content of the new “stabilisation clause”

Starting from 1 January 2024, in place of the former stabilisation guarantees SEZ residents will receive new ones that are similar to those provided to residents of advanced development territories and the Free Port of Vladivostok. To this end, Federal Law No. 522-FZ has amended article 5(4.2) of the Tax Code.

It is established that no provisions of tax legislation are applied to SEZ residents, specifically insofar as they:

• increase and/or cancel reduced tax rates, tariffs of insurance contributions established for taxpayers that are residents of the SEZ in connection with the performance of agreements on conducting business (the “Agreement”);

• cancel or change the conditions of granting tax benefits and other preferences (including a special procedure and terms for paying them and the procedure for paying taxes and duties).

Stabilisation guarantees extend to apply to items of tax legislation in terms of:

• insurance contributions;

• corporate profit tax;

• corporate property tax;

• tax on vehicles;

• land tax.

3. Conditions whereby the “stabilisation clause” applies

Starting from 1 January 2024, the "stabilisation clause” will apply with respect to SEZ residents only on condition that the relevant Agreement specifies links to provisions of tax legislation with regard to reduced tax rates, tariffs, insurance contributions or tax benefits and other preferences (including a special procedure of and timeframes for payment, as well as the procedure for calculating taxes and duties) established for taxpayers that are SEZ residents in connection with their performance of Agreements.

4. Consequences of the "stabilisation clause” being changed for the purposes of paying the tax on excess profit

Immediately after the adoption of Federal Law No. 448-FZ whereby, starting from 1 January 2024, stabilisation guarantees are excluded from the SEZ Law, the Ministry of Finance published Letter No. 03-03-05/75723 dated 11 August 2023 clarifying that SEZ residents will also be subject to the provisions of Federal Law No. 414-FZ dated 4 August 2023 “On the tax on excess profit”.

As the state authority has clarified, article 38 of the SEZ Law that provides for stabilisation guarantees for residents will be repealed starting from 1 January 2024. From the same date the federal law comes into force establishing tax on excess profit. In view of this and in absence of provisions regarding the stabilisation clause for SEZ residents in article 5 of the Tax Code, the provisions of the Law on the Tax on Excess Profit will also apply to residents of SEZ starting from 1 January 2024.

The text of the draft law that underlies Law No. 522-FZ, the law at hand, came into being after the Ministry of Finance had published the above letter.

However, the adoption of Law No. 522-FZ and the expansion, starting from 1 January 2024, of the list of subjects of stabilisation guarantees set forth in article 5(4.2) of the Tax Code owing to SEZ residents being included in it does not cancel the obligation to pay tax on excess profit.

Firstly, the new stabilisation clause does not protect taxpayers from the need to pay newly introduced taxes that include excess profit tax but rather guarantees the stability of existing tax rates and the conditions whereby benefits are granted.

Secondly, the stabilisation of tax rates will apply only if there are references in the Agreement on conducting business to the provisions of tax legislation regarding preferences with respect to a specific tax.

What to think about and what to do

Help from your adviser

The lawyers of Pepeliaev Group have extensive experience of advising clients on all matters relating to SEZs.

We are ready to assist you with all issues of new stabilisation guarantees, specifically, to help you draft, approve and enter into the supplemental agreement (Agreement), as well as to formulate individual provisions of such an agreement for the purposes of the stabilisation clause being applied with respect to various benefits and preferences.