Russian Special Administrative Regions attract foreign investors
Pepeliaev Group advises that the Russian Ministry of Economic Development is developing a draft law to expand benefits for residents of Special Administrative Regions (SARs).
According to article 2 of Federal Law No. 290-FZ “On international companies” dated 3 August 2018 which is currently in effect, a foreign legal entity can obtain the status of an international company (an “IC”) only if certain requirements are complied with. One of these is that such entity must be registered in a FATF or MONEYVAL member state.
As the explanatory note to the draft law states, the existing requirement for registration prevents companies that are not registered in a FATF or MONEYVAL member state but are registered in a member state of another regional group[1] from registering as an IC in Russia through the redomiciliation procedure and from receiving the status of a SAR member.
In view of this, the draft law proposes to remove the requirement for mandatory registration in a FATF or MONEYVAL member state, which will make it possible to increase significantly the number of members of SARs and to help to solve the problem with the repatriation of capital to Russia.
The proposed amendments can increase significantly the attractiveness of moving to a SAR for foreign companies as compared with what the current legislation permits. This measure will enable many SAR members to enjoy withholding tax benefits. For example, for foreign holding companies:
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According to the Ministry for the Development of the Russian Far East, work is in progress to develop amendments that will affect the following areas:
- SAR companies issuing shares of different types;
- entrenching the ‘transit’ redomiciliation;
- establishing a possibility to apply a similar tax rate on dividends paid by non-public international holding companies;
- granting exemptions for SAR residents from taxes on the income of branches and on foreign exchange differences.
It is remarkable and very attractive that the SAR authorities and tax authorities contact each potential interested party individually and study the documents together with them; this helps analyse whether the SAR membership is possible and necessary. Businesses receive clarifications of the main requirements for redomiciliation and obtain complete information about how profitable this mechanism is.
As both the Ministry of Economic Development and the Ministry for the Development of the Russian Far East note, the primary intended result of this process is the 'deoffshorisation' of the economy: the transfer of assets under Russian jurisdiction and transparency in the asset ownership structure.
In this way, the amendments to the legislation with a view to increasing the possible number of SAR members and to broadening their possibilities and tax benefits for them makes the SAR regime more attractive for owners of international business structures that work both within and outside Russia.
Help from your adviser
The Pepeliaev Group team is ready to help in advising and providing support to clients regarding redomiciliation matters and obtaining the status of a SAR member.
[1] For example, The Eurasian Group on combating money laundering and financing of terrorism (EAG), Asia/Pacific Group on Money Laundering (APG), Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Grupo de Acción Financiera de Latinoamérica (GAFILAT), Middle East And North Africa Financial Action Task Force (MENAFATF, Intergovernmental Action Group against Money Laundering in West Africa (GIABA), Grupo de Acción contra el Blanqueo de Capitales en África central (GABAC).