Russia’s Vedomosti newspaper has reported that the Russian government is planning the creation of two offshore financial centers (OFCs) with special legal systems in the Kaliningrad Region and the Vladivostok in Russia’s Far Eastern Primorsky Krai territory to support business and trade.
Kaliningrad is based in the Western Baltics and is a Russian enclave surrounded by the European Union. The OFC may be situated on its Oktyabrsky Island, to allow customs and financial operations to be physically separated from normal commercial applications at standard national tax rates. A similar plan is envisaged for Russky Island near Vladivostok in Primorsky Krai.
The relevant legislation is expected to be adopted during the Russian parliament’s spring session. If implemented, the project will allow money withdrawn from Russia to be quickly returned via the OFCs. Overseas businesses, including expatriate Russians targeted US sanctions will then be able to return their companies to Russia without putting any risk to the firms’ legal and financial infrastructures or disclosing sensitive information. The companies that will operate in the OFCs will get a number of tax privileges.
Hong Kong has long operated as a quasi OFC as has Delaware in the United States and jurisdictions such as Jersey (UK), the British Virgin Islands, and other similar tax havens. The establishment of a Russian OFC in Kaliningrad would prove advantageous to EU businesses wishing to trade with Russia and the Eurasian Economic Union. China is currently negotiating with the EAEU over a Free Trade Agreement, which would be of enormous attraction to European businesses with access to an offshore subsidiary entity in Kaliningrad OFC.
Meanwhile, a Vladivostok based OFC would be beneficial to Asian based businesses and especially Chinese, Kazakh, Korean, Japanese, and Mongolian companies as well as close potential links to Hong Kong and Shanghai.
“These developments could, if realized make a significant impact on Russian trade, and with an OFC situated in both Western and Far East Russia be a boom for both European and Asian businesses wishing to access not just Russia but the routes to and from China and beyond,” says Chris Devonshire-Ellis of Dezan Shira & Associates. Having distinct regional zones offering preferential tax treatments would be a huge economic draw and would potentially herald a boomtown status for both Kanliningrad and Vladivostok. These are exciting developments and if passed will shake up the global offshore financial services industry with new products to sell of direct benefit to the entire Eurasian business community.”
Russia Briefing is written and produced by Dezan Shira & Associates. The firm provides Russian and international businesses and governments with strategic, legal, tax and operational advisory services to SMEs and MNCs investing throughout Russia and Asia. We maintain 28 offices across China, India and the ASEAN nations as well as St. Petersburg and Moscow. Please contact the firm at email@example.com visit our Russia Desk or visit our practice at www.dezshira.com
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