Law & Numbers - News Tax

Russia plans Crimean Special Economic Zone

22.04.2014

The Russian Government has announced that it may offer temporary tax benefits for companies based in the Crimea region as part of contentious plans to annex the territory.

Russian Deputy Finance Minister Sergei Shatalov told Russian media: "Probably joining Crimea to Russia will require significant changes in tax legislation – the formation of the customs service, tax service, tax register of legal entities and persons, as well as rules to adapt to the Russian tax system. Transition periods will be needed. It is possible that that there will be special tax regimes."

Russian Prime Minister Dmitry Medvedev said at a government meeting on March 24, 2014, that Crimea may become a special economic zone (SEZ) similar to the Kalingrad region, which grants local residents exemption from income and property taxes for six years. Deputy Prime Minister Dmitry Kozak said the SEZ could be in place by April 15, 2014.

The Prime Minister also singled out two investment projects he felt needed immediate funding. One was for natural gas exploration, which would fall in the arms of state owned Gazprom, and the other was working on fresh water supply in the peninsula through desalination of Black Sea water.

Russia’s government said it would inject 10.7 billion rubles ($300 million) into Crimea’s budget and send a 2.4 billion rubles to the port city of Sevastopol for small and medium-sized businesses, social security and miscellaneous items.

Crimea could be a drain on Russian finances. The economy isn’t growing to its potential, under 2% GDP growth expected this year. Oil and gas prices — the lifeblood of Russia’s budget — have held steady to a slight decline. Crimea has an estimated 55 billion ruble budget deficit, which Moscow said it will cover from the federal budget.

“Our aim is to make the peninsula as attractive as possible to investors, so that it can generate sufficient income for its own development,” Medvedev told.

The absorption of Crimea and its two million residents creates an added financial burden on Russia, which is struggling with slow growth and facing Western sanctions over what the United States and European Union say is an illegal land grab.
Medvedev said pensions for Crimeans would be raised gradually over the coming months until they reach the national level, and promised upgrades of the peninsula's roads and other infrastructure.

But his remarks indicated the Kremlin hopes Crimea, which he said had “colossal prospects” for tourism income, will become self-sufficient in fairly short order.

“There are opportunities for this - we have taken everything into consideration,” Medvedev said. He said the special economic zone “will allow for the use of special tax and customs regimes in Crimea, and also minimize administrative procedures.”






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