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Skolkovo innovation centre: tax ‘super benefits’
Federal Law No. 243-FZ has amended the Russian Tax Code with the aim of promoting and supporting investors’ activity in the Skolkovo innovation centre. The changes provide for benefits on an unprecedented scale for participants in the Skolkovo project.
Project participants will receive the following benefits:
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VAT exemption
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profit tax exemption
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property tax exemption
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exemption from compulsory insurance contributions to the social and medical funds
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reduced rate of contributions to the Russian Pension Fund
Procedure for benefits to be applied
Until its annual revenues exceed one billion roubles, an organisation is not liable for profit tax, so it does not need to keep tax accounting records. From the year in which that figure is exceeded, the organisation needs to keep tax accounting records so as to calculate its taxable profit. That profit is liable to tax at a zero rate until, whether over one or several years, 300 million roubles of profit have been taxed at the zero rate, at which point the organisation will begin to pay tax at the generally applicable rate. The property tax benefit will also terminate at the same time, while the organisation will begin to pay VAT from the period during which it passes the 300 million rouble limit.
The organisation may use the VAT and profit tax benefit for no more than ten years from when it gains the status of a project participant. This 10-year restriction does not, however, apply to the property tax benefit.
From 2011, the rate for insurance contributions on payments to the employees of project participant companies is set at 14%. This will go in full to the Pension Fund, and no contributions to the social or medical funds will be levied. This benefit also has a ten-year lifespan, but is subject to the same conditions as the VAT exemption discussed above.
Other features
While participants in the Skolkovo projects have revenues of less than 1 billion roubles, they are exempted from the obligation to keep full accounting records.
Moreover, Federal Law No. 244-FZ dated 28 September 2010 "On the Skolkovo innovation centre" provides that, in certain cases, amounts of VAT and customs duty paid on goods (except for excisable goods) imported to Skolkovo will be reimbursed under the procedure laid down in budgetary legislation. This law provides for special subdivisions of the tax authorities and authorities of the extra-budgetary funds to be created within the Skolkovo centre. These subdivisions will be responsible for record keeping and supervision in relation to project participants.
Recommendations and conclusions
We recommend that, before deciding whether they may participate in research within the Skolkovo framework, interested parties should carry out a comprehensive evaluation of the favourable financial regime. They should also consider other advantages, as well as the rules for implementing the projects and other circumstances stipulated by current legislation.
They should pay particular heed to:
- benefits of a general nature granted to organisations undertaking research and development (R&D) in Russia. This makes it possible: to deduct expenses in full; to deduct expenses connected with certain types of R&D multiplied by a factor of 1.5; to amortise tangible fixed assets multiplied by a factor of 3; not to pay VAT when foreign contractors perform R&D in Russia or when rights to R&D are transferred to foreign licensors; and to make use of VAT benefits granted to scientific organisations and granted in respect of specific types of R&D. These benefits may be used both before gaining Skolkovo project participant status and after that status expires;
- the adoption by the State Duma in its third reading of the draft law on introducing a beneficial rate of 14% for contributions by IT companies to the extra-budgetary funds, which will have (retrospective) effect from 1 January 2010;
- the possibility of paying dividends to the foreign members of companies participating in such projects with a withholding tax rate of 5%, allowable under many Russian double taxation treaties. When the devidends received are subsequently exempt from tax in the recipient's country, these benefits are an attractive incentive for foreign investors to invest.
Pepeliaev Group's professionals have long experience of providing support in major investment projects in modern Russia. Through this work, we have gained a thorough knowledge of the tax and legal considerations at hand, allowing us to protect investors and reduce investment risks to the maximum degree possible. Our experience will be put to use in supporting Russian and foreign investments in research and development work and the commercial exploitation of that work.
For more information please visit www.pgplaw.ru
Andrey Nikonov, Senior Partner, Pepeliaev Group
Tel.: (495) 967-00-07
Fax: (495) 967-00-08
Roustam Vakhitov, Head of International Tax Service Group, LLM, Pepeliaev Group
Tel.: (495) 967-00-07
Fax: (495) 967-00-08