Free economic zones in the Russian Federation
Draft law on simplification of registration in the FEZ
Free economic zone (FEZ) is a territory with an economic status within which there are favorable conditions for doing business. Companies registered in FEZ receive various subsidies and benefits from the state.
The activities of free economic zones in Russia are regulated by the Federal Law No. 116-FZ, adopted in 2005. In February 2022, the Government supported the bill developed by the Russian Ministry of Economic Development. Draft Law No. 67170-8 contains amendments to the Federal Law No. 116-FZ.
The main provisions of the new bill are as follows:
- The procedure of obtaining the status of a FEZ resident will be simplified. Only an investment project will be required to register a company in the FEZ. The term of registration of a resident will be reduced to 15 working days.
- A new category of FEZ: industrial and technological zones. It unites industrial-production and technology-innovative zones.
- A simplified procedure for creating a free economic zone in the North Caucasus Federal District.
- A new form of document: Agreement on creation and management of the FEZ. It should define the boundaries of the zone, a long-term development plan, obligations to finance infrastructure, the powers of the managing parties.
- Information about vacant land plots and the availability of infrastructure facilities will have to be publicly available.
- The resident gets the right to buy the leased area at a low price terms of the agreement are fulfilled. The resident is obliged to make a certain amount of investment in the FEZ to repurchase the plot.
- Enlargement of the FEZ is allowed only after 50% of infrastructural capacities are loaded or 50% of the territory is built.
- The liquidation of the FEZ is possible if it is not profitable for 5 consecutive years. KPI evaluation starts 2 years after registration.
Active FEZ in Russia
As of February 2022, 42 free economic zones are registered in Russia. They are divided into 4 categories:
- Industrial and manufacturing: 23 zones;
- Tourist and recreational: 10 zones;
- Technical and innovative: 7 zones;
- Port: 2 zones.
More than 1,000 legal entities operate as FEZ residents, among which 140 organizations are engaged in the attraction of foreign capital from 42 states. 48 000 jobs have been created in the FEZ territories.
The amount of declared investments in the FEZ in the Russian Federation exceeded 1,43 trillion RUB. The amount of investments made exceeded 632,2 billion RUB. Residents have paid more than 229,7 billion RUB in taxes, insurance premiums and customs payments over 17 years.
Advantages and disadvantages of registration in the FEZ
Registration as a FEZ resident gives entrepreneurs many privileges:
- state subsidies;
- reduced taxes, fees and duties;
- low prices for property rentals;
- use of modern business infrastructure;
- the right to buy land at a reduced price;
- the opportunity to participate in the concessional lending program;
- some FEZs have a procedure of free customs zone.
It is most beneficial for IT companies to work as a FEZ resident. There are minimum rates for taxes and contributions for this segment.
To obtain the status of a resident, a large initial investment is required. To enter some zones, it is required to invest 120 million RUB. At the same time, the entrepreneur must put into circulation the first 40 million RUB within 3 years after registration.
The downside of registering is limiting business expansion opportunities. Companies that have the status of a resident cannot open branches outside the FEZ.