Russia to Create Tax Free Zone near Shanghai

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bridge-to-russky-islandRussian Prime Minister Dmitry Medvedev has confirmed plans to create a special administrative tax free zone in Primorsky Krai in Far Eastern Russia.

Speaking at the International Legal Forum plenary session at the recent St. Petersburg International Economic Forum, he stated: “We are planning to create a special legal status and special tax regimes in the Primorsky Krai region; this status will be available on the Russky Island soon”.

Primorsky Krai is a federal subject of Russia, located in the Far East of the country and is a part of the Far Eastern Federal District. The city of Vladivostok is the administrative center, as well as being the largest city in the Russian Far East. The region has the largest economy among the federal subjects in the Russian Far East. Russky Island lies just south of the main city of Vladivostok and is connected to the city by the world’s longest cable-stayed bridge.

Vladivostok has been developing in recent years as a trade and financial centre. It is home to a successful free trade zone, as well as the Eurasian Diamond Exchange and casinos, popular with Chinese tourists.

The potential tax free zone status for Russky Island is likely to differ from the Vladivostok Free Trade Zone, which is targeted at attracting foreign manufacturing and processing investors from Asia. Instead, the Russky Island tax free status is can be expected to offer a safe return home for Russian money and investments currently held elsewhere overseas and especially in the United States.

vladivostok-map

According to Medvedev, the best practices of advanced legal regulations were tested in experimental zones and have the potential to come into effect for the Russian economy as a whole. It is estimated that Russian businessmen keep billions of dollars in the US and nearby British and US offshore zones, such as the British Virgin Islands and Delaware.

The population of Primorsky Krai is just over 1.3 million, and considerable investment has been made to position itself as a Russian financial and trade hub servicing Asia. It has direct sea and air links to Shanghai, with a direct flight taking just three hours. Vladivostok also provides an 8 day visa on arrival service.

Russia and China have also agreed to operate the Primorye-1 Corridor, which provides port access to China’s landlocked Heilongjiang Province. This access, coupled with China’s recent adoption of the TIR convention, will allow Chinese products shipping facilities at Vladivostok, providing a much cheaper and faster transportation option for markets in Russia, Japan, Korea and the Western seaboard of Canada and the US.

“Russia’s experiment with turning Vladivostok’s Russky Island into a tax haven for Russian businesses dealing internationally is an interesting one”, says Chris Devonshire-Ellis of Dezan Shira & Associates. “It fits with the new state policy of adapting new mechanisms to lessen reliance on external financing. A lot will depend upon how safe and secure Russian businessmen with financial assets currently parked outside Russia will feel about both the incentives and guarantees given in Primorsky Krai. It will also be interesting to note whether the legislation will allow foreign-owned Russian companies to take advantage of the facility. We may expect a zero rate of tax to be applied on profits generated externally from Russia, in addition to tax incentives being available for the further re-investment of these funds into Russia”.

Vladivostok – Fast Facts
Size: 331 sq km
Population: 620,000
GDP per capita: Int.$12,574 (equivalent to Venezuala)

 

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Russia Briefing is produced by Dezan Shira & Associates. The practice provides foreign investors in Asia with research, legal and tax advisory services and maintains offices throughout Asia as well as in Russia. For assistance please contact the firm at russia@dezshira.com or visit us at www.dezshira.com

 

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