Russia Tax Preferences To Spur US$243 Billion Investments & Tax Free Zones For Russian Arctic Development

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Russia’s Arctic Commission has met in Murmansk to discuss ways to boost the extraction of natural resources in the country’s vast north. “We have to create a balanced system of preferences.” Arctic Committee chair and Deputy Prime Minister Yuri Trutnev stated and explained that Russia’s new Law on the Arctic will provide five categories of projects that will be entitled to major tax cuts. Among them are offshore petroleum projects, production of LNG, the petrochemical industry and mineral extraction.

Russian government estimates that the proposed tax preferences will lead to as much as 15 trillion rubles (US$243 billion) of new investments in the Russian Arctic over the next 15 years. Among the new prospective industries in the region is the petrochemical sector.

Gazprom has already started planning a huge plant for production of plastics products polyethylene and polypropylene in Yamal.

According to Trutnev, a new Arctic policy bill has been submitted to parliament and is expected to be approved in the course of the first quarter of 2020. The law covers the period until year 2035 and replaces a state Arctic policy document from 2008.

This is in line with the wishes of Russian President Vladimir Putin, who has made clear that he wants annual shipments on the Northern Sea Route to reach 80 million tons by 2025.

According to Trutnev, what is required is a new system of tax preferences for natural resource developers. These include a reduction to 5 percent tax on offshore oil production in the first 15 years of new fields, as well as a 50 percent tax deduction on shelf exploration.

In addition is a zero percent tax rate on production of LNG and petrochemical products in the first 12 year life periods of new projects. Also new onshore oil projects in the Russian east Arctic will get a zero percent production tax rate.

Companies that want to take use of the preferences must register in the respective Arctic region and invest a minimum of 10 million rubles in new projects and new industries, while the new legislation also allows regions to establish free trade zones that include tax-free import of equipment as well as tax-free export of processed products.

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