Special Economic Zones:

Foreign direct investment expected to significantly increase for Russia in 2010
As of 2009, FDI into the Russian economy is expected to be finalized around $20bn appx. Given the general economic downturn, this big number is likely to increase in 2010 as more investment is attracted to Special Economic Zones.

The Russian government has set its sights on economic diversification in order to switch from a resource-to an innovation-based economy. To assist the transition, Special Economic Zones (SEZs) have been created with preferential taxation and pre-existing infrastructure on production sites.

When we look at the who are benefiting from the SEZ, it is quite clear that investors for hospitality sector are the main players. Out of 33 new resident companies registered in Russian SEZs since the beginning of 2009, 19 represent the tourist industry entries as new players.
Therefore as IFK Russia Team, we believe that with the current state strategy, hospitality sector investors are heavily encouraged to enter into Russian Market. As we also notice that non-branded hotels and lack of international standardized hotels are scarce in Russia compared to western markets, and as the effects of crisis in 2009 showed that international money circles are more tend to have stable and profitable return numbers, it is our opinion that Russian Hospitality Market will greatly benefit from it in 2010.

Benefits from investments in special economic zones

Tax concessions

• Exemption from property tax for the first five years (standard rate: 2.2pc)

• Exemption from land tax for the first five years (standard rate: 1.5pc)

• Exemption from all local fiscal charges in some SEZs (Lipetsk, Tomsk, Alabuga)

• Unlimited time for using outstand-ing tax losses

• Social tax reduced from 26pc to 14pc

• Low annual lease rate equal to 2pc of cadastral land value

Customs privileges

• Exemption from import duties on Russian and international goods entering SEZs

• Exemption from import turnover tax on Russian and international goods entering SEZs

• VAT is charged on goods exported from SEZs

• Import duty is collected on imported goods exported from SEZs to the rest of Russia

Types of SEZs

Industrial Production Zones

Required investment of 10m euros at least (including 1m euros in the first year). There are no similar requirements forother SEZs. Area not more than 20 sq km.

Technical Research and Implementation zones

Created on not more than two territory plots, with a total area of not more than 3 sq km. Life not more than 20 years.

Tourism-recreation zones

Created on one or several territory plots, determined by the government. May include the whole territory of any administrative territorial entity. Rendering of tourist and health-improving services.

Source for privileges : PWC