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And the Russian offshore is not nice

Foreigners will never be welcomed in special administrative districts in Primorye and the Kaliningrad region

Russia intends to break the current agreement with Cyprus on the avoidance of double taxation, and the Ministry of Economic Development of Russia plans to allow foreign business from unreliable regional groups to move to special administrative regions (SAR) created in the Primorsky Territory and the Kaliningrad region. It would seem that the territories have good prospects, but business is reluctant to enter there. This is especially true for the Russky Island, where only two residents are registered. Why is this happening and is there a way out of the situation, EastRussia found out.

And the Russian offshore is not nice
Photo: pixabay.com

At the end of September, speaking at the round table "CAP: two years of success and prospects for further development", Deputy Minister of Economic Development Ilya Torosov said that the government had approved amendments to the federal law regulating the activities of special administrative regions - Russian and Oktyabrsky, which became operational in 2018 in the Primorsky Territory and the Kaliningrad Region. According to Torosov, among the amendments, for example, there are those that will allow foreign companies from a wider range of foreign offshore companies to enter the SAR.

They also propose to expand the list of regional groups and legal entities that can apply for the status of international companies in the SAR. In fact, the deputy minister noted, the bill removes all geographical restrictions for companies 'migration' to the SAR, and the countries of all existing regional anti-money laundering groups have been added to it. A number of amendments also concern the creation of international funds in the SAR.

The amendments may come into force as early as 2021, and then the special administrative regions can expect an increase in the number of residents. To date, 35 participants have registered in the SAR, which were dubbed "Russian offshores" for the possibility of preferential taxation: 34 international companies and one international fund belonging to different owners and operating in various industries. For example, RUSAL, one of the world's largest aluminum producers, has recently become a resident of Oktyabrsky. This is the second public company with international status to move to SAR. According to Ilya Torosov, this proves its effectiveness as a tool for returning Russian capital from abroad, and the high efficiency of those who laboriously work on this tool.

Like RUSAL, most of the residents are registered in the Kaliningrad Region, while there are only two of them in the SAR on Russky Island. The first is the International Company Finvision Holdings, one of the key shareholders of Vostochny Bank. Pavel Sheika, Deputy Director of the Department of Resident Policy of the Corporation for the Development of the Far East (KRDV), the managing company of SAR, said that it had already fulfilled its investment obligations. In addition, at EEF-2019, Finvision Holdings signed an agreement with JSC KRDV on the intention to implement a project to create an IT park at Russkiy, which will provide businesses with high-quality and modern infrastructure.

The second company that moved to Russkiy was the international company Donalink, part of the joint-stock holding of Andrey Melnichenko, specializing mainly in the coal and energy businesses. She also fulfilled her investment commitments.

“Today KRDV is negotiating with several other interested parties. We communicate with everyone individually, jointly study documents, analyzing the possibility and feasibility of participating in the CAP. Examples of companies that have received registration in the CAP in Russian can be a convincing argument for those who have not yet made a final decision. The sooner the business sees that the mechanism really works and provides the opportunity to change the "registration" of the company without any risks to business, the more confident it will be possible to declare that the deoffshorization process has received a new effective tool, - said Pavel Sheika. - Investors considering the possibility of "moving" to the Primorsky SAR should remember that the territory of the island belongs to the regime of the free port of Vladivostok, so that the company or its "daughters" will be able to receive additional benefits on income tax, property, land and payment of insurance premiums for new jobs subject to the implementation of investment projects in the real sector of the regional economy ”.

The KRDV believes that the Vladivostok offshore has several times less residents than the Kaliningrad one because Russky Island is much farther from Cyprus, the main source of "redomiciled" companies, and from Moscow, where a significant part of the capital is concentrated.

“Russkiy Island is of interest mainly to companies whose assets are wholly or partially concentrated in Siberia or the Far East, and to companies focused on working in the markets of the Asia-Pacific region. This allows them to increase the efficiency of business management and reduce transaction costs, ”says Pavel Sheika.

The KRDV expects that in the near future the number of residents in the SAR on Russky Island will double.

Doctor of Economics, Professor of the Vladivostok University of Economics and Service Alexander Latkin sees another reason for the small number of residents.

“In the Far East, there was an oversaturation of preferential regimes: territories of advanced socio-economic development, special economic zones, the free port of Vladivostok, a Far Eastern hectare, a special administrative region ... select best practices and implement them. Under the current conditions, business does not always understand what suits it best, ”the expert explains.

Maksim Krivelevich, Ph.D. in Economics, Associate Professor of the Department of Finance and Credit, School of Economic Science, Far Eastern Federal University, draws attention to a certain contradiction: on the one hand, the state tightens tax discipline, closely monitors the income of individuals and legal entities, on the other hand, it makes concessions for large companies ...

“Look at how the Germans are behaving. They pay money to be leaked to the databases of companies registered in offshores. Russia needs to choose one path: either as Switzerland declare itself a country with low tax jurisdiction, or as Germany, collect taxes from everyone, declaring: "We have high taxes, because we are a welfare state, and social programs are paid for by your taxes", - explains Maxim Krivelevich.

One of the alternative options for creating another preferential regime in the Far Eastern Federal District, according to the interlocutor of EastRussia, could be the addition of powers to the already operating - the free port of Vladivostok, thanks to which more than one thousand new projects were earned. Not all of them are successful, but nevertheless, in a short time, new residential neighborhoods were built, transport and logistics complexes, agricultural production, mining and metallurgical plants were launched.

“At the same time, we have very complicated currency regulation and heavy currency control. It is possible to bring foreign money into the project, but not to withdraw it back. Let's say you took $ 1,5 million from a foreign partner, made a profit, and want to withdraw $ 1,5 million back. It won't work. This makes it difficult to attract foreign investors who understand that such difficulties await them. As a result, various "black" schemes with money smuggling and other violations of the law begin to operate. A serious civilized state cannot afford such things. FPV residents only need to be given freedom from foreign exchange regulation and foreign exchange control, which is what offshore implies, as well as effective benefits in terms of administrative regulation, and, as an option, the ability to make foreign exchange payments between residents. In fact, ATS is a piece of FPV functionality that needs to be added, ”the expert is sure.

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