Русский
Russian and foreign investors are starting to become more savvy over tax incentives on offer in Russia’s Special Administrative Regions (SAR), increasing their investments by almost a third since the beginning of this year. The two SAR that Russia currently has are sited in Kaliningrad, in Western Russia, and Russky Island, Vladivostok in the Primorye Krai region of the Russian Far East.
428 incorporations have now been invested in these areas, according to the Russian Ministry of Economic Development, an increase of 29%. The demand for special zones is increasing, as it is becoming increasingly difficult to manage a business from overseas offshore jurisdictions due to sanctions. Kaliningrad tends to compete with similar British jurisdictions such as Jersey and the Isle of Man, as well as Cyprus and to some extent, Malta.
Russky Island offers alternatives to jurisdictions such as Hong Kong, and Singapore, in addition to Mauritius and the BVI. Previous double tax treaty agreements with all these offshore centres have also been suspended under sanctions. The Cyprus agreement was cancelled for example in 2022 and the jurisdiction has become Russia-toxic as part of the EU. Numerous previously Cyprus-based corporates have been moving away.
Moving to Russian SARs helps companies with Russian investments resume paying dividends to their shareholders. This is especially the case if those dividends are realised from markets in Russia as well other friendly countries.
The number of new incorporations in these two SAR is 10% more than in 2023, and almost three times more than in 2022. Such figures indicate that foreign companies are actively moving to Russian legal and tax jurisdictions, although the concept has remained a novelty to date. But this perception is changing.
The total amount of investments in Russia’s two SARs amounts to ₽85 billion (US$965 million). Investors are typically medium-sized, light industrial manufacturing, production, or assembly plants, but corporate investors have also been attracted as they can make dividends payments to Russian shareholders without facing financial barriers caused by sanctions. There are several examples: VK, Russia’s equivalent to Facebook, T-Bank, a large digital services consumer bank, Rusal, the largest aluminium producer in Russia, the Lenta retail store chain and many significant Russian corporates – whose shares are now traded on the Moscow Exchange. From July 24, trading in Yandex securities will begin after the company moved to the Kaliningrad SAR.
For SMEs, Russia’s two SAR offer a reduced 5% income tax for individuals and corporates, and do not pay taxes on dividends, property and the product imports into Russia, while currency controls do not apply. SARs are governed by Russia’s Foreign Corporate Law, which states that they are allowed to work according to the norms adopted in the country they were originally registered in until 2039.
The SARs also allows previously foreign registered companies to redomicile and continue to operate in Russia without fear of Western sanctions. The main purpose of organising these SAR was to create an alternative to foreign offshore zones for Russian business.
In the coming years, these SAR will actively develop and gain popularity, as they have been shown to stimulate regional development. It is possible that Moscow may facilitate additional zones, probably close to its Eastern border regions.
Russia’s Pivot to Asia can provide details and advisory services to best match your corporate activity to the variety of services and incentives offered by Russia’s SARs. Please email us at [email protected]
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