Russia’s Free Trade & Special Economic Zones

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Op/Ed by Chris Devonshire-Ellis

Russia’s SEZ from East to West offer opportunities for lower cost manufacturing for the China and European markets 

Russia has numerous Special Economic Zones and Free Trade Ports, and is continuing to look at investing on more, especially nearer to the borders with China in both the Russian Far East and Siberia. Russia’s recent history in such zones has tended to place them with access to servicing the domestic, rather than export markets. Therefore many of the zones listed are ideal for accessing Russia’s heartland. However doing this also requires knowledge of shipping – Russia is bisected by several massive rivers that are used for transportation, as well as its highly developed Trans-Siberian rail system and its spin offs. Consequently, understanding the significance of these zones requires an understanding of Russian market dynamics and transportation modes. However, zones such as Vladivostok to the East, and the cluster of zones around Moscow and Western Russia do also service markets in Eastern Europe and beyond. We can take a tour of these zones, roughly running from east to west, as follows:

free-trade-special-economic-zones-in-russia

Vladivostok Free Port
Vladivostok is a Free Port, and offers reduced 5% Profits Tax for the first five years of operations and 12% the next five years, (national rate is 20%), zero land and property tax exemptions, reduced social insurance payments and tariff-free imports. The free trade zone has become popular with light manufacturing industries and also houses the Eurasian Diamond Exchange, a trading platform for Siberian diamonds, with additional processing facilities. It is possible to obtain 8 day electronic visas for the region (check for qualifications).   Vladivostok is the main terminus for the Trans-Siberian railway and is well connected to China, Japan and Korea.

The Vladivostok Free Port website is here.

Sovetskaya Gavan 
Sovetskaya Gavan is a Port city on Russia’s Far East Coast in Khabarovsk Krai, opening out onto the Sea of Japan.  Sovetskaya Gavan’s economy is largely dependent on the harbor and related activities; the town has a deep water port for cargo and fishing vessels, as well as ship repair facilities. There is also some foodstuffs production, such as fish processing. The SEZ serves the logistics industry mainly in shipping.

Details can be accessed here.

Irkutsk Gate Of Baikal SEZ
This SEZ covers 757 hectares, and offers incentives for investors in the regional tourism industry. It provides close-to-zero land use rights, in addition to 0% land and property taxes,

A promotional video can be seen here.

Tomsk Industrial SEZ
Tomsk is in Siberia, and connected to the Trans-Siberian railway.  The SEZ comprises two parts, a northern area dedicated to petrochemicals and chemicals, and a southern section designed to attract hi-tech industries.  It provides discounts on profits tax and social security in addition to zero duties on tariffs, property taxes and so on.

The Tomsk SEZ details are here.

Sverdlovsk Titanium Valley SEZ
Sverdlovsk is in Urals region of Russia, with the important regional capital city of Yekaterinburg. The Titanium Valley SEZ is engaged primarily in the metallurgy industry, including Titanium production, and related industries requiring usage of hi-tech metals such as aviation, medical equipment, engineering and so on. It offers reduced profits taxes to 2% in addition to discounts on social insurance, and zero rates for property and land taxes.

The Titanium Valley SEZ details are here.

Alabuga SEZ, Yelabaluga 
The Alaaluga SEZ is in Tatarstan and specializes in industrial and production services, in a 20 km² area in the Kama Innovative Territorial Production Cluster. It is thus far one of the most successful SEZ in Russia, with varying reductions for profits taxes in addition to zero rated land and property taxes and discounts on social insurances. It handles a large number of automotive works, including cars as well as industrial vehicles such as tractors and other agricultural machinery. The SEZ is connected to the main M7 auto highway as well as the Unified Deep Water Russian Rive network and the regional rail network, giving market access to much of Central and Southern Russia.

It is featured on Wikipedia here while the Alabuga SEZ website is here.

Samara Togliatti SEZ
Samara Togliatti SEZ is the gateway to the Volga region of Russia and is connected by road, rail and navigable river to Russia’s heartland and most major cities. The SEZ specialises in mechanical engineering for aerospace, automotive and other machinery, food processing and light industrial products. It offers 2% profits tax rates, zero land and property taxes, reductions in social insurance and duty free imports.

The Samara Togliatti SEZ details are here.

Innopolis SEZ
The Innopolis SEZ is based near to Kazan in Tatarstan and is a Technology Park with aims to become the IT centre of Russia, covering 1,200 ha. It houses Russia’s first IT University and provides discounts on profits taxes, social insurance and land, property and other related taxes.

Details of the Innopolis SEZ can be found here.

Astrakhan Lotus SEZ
The Astrakhan Lotus SEZ is based on the Caspian Sea and is connected to the Eurasian Land Bridge and ports from Kazakhstan such as Aktau.

The Lotus SEZ provides oil and gas processing, other chemical and raw materials processing facilities, shipbuilding and other engineering facilities. It provides 2% Profits tax rates for the initial ten years, reduced social insurance, zero land and property taxes and import free tariffs.

The Astrakhan Lotus SEZ overview is here.

Ulyanovsk SEZ
Ulyanovsk is sited next to the Volga River and as such has deep water navigable port infrastructure. It is a major, diversified, industrial hub for the aviation and auto industries, and is a de facto industrial cluster comprising all elements of production in these fields. It covers 426 ha, and offers 2% income tax for the first ten years in addition to the usual deductions in social insurance, land and property taxes.

Details of the Ulyanovsk Economic Zone can be found here.

Lipetsk SEZ
Lipetsk is sited on the River Don and provides deep water navigation facilities into the Russian heartland. It is south of Moscow and directly connected by rail. The principal industries of Lipetsk include ferrous metallurgy, machinery, metalworking, machine tools, engines, chemicals, food, and clothing, and the SEZ reflects this. Incentives include 2% profits tax for the first seven years of operations, plus discounts on social insurance, property and land taxes. It has customs and bonded facilities.

Details of the Lipetsk SEZ can be found here.

Tula Uzlovaya SEZ
Tula is south of Moscow and directly connected by train. It has a long history of metalworking, and also has access to the navigable Upa River. The Uzlovaya SEZ provides facilities for metallurgy, machinery and metal with a high share of military-industrial working in addition to and food manufacturing.

The usual discounts on taxes and rates apply. Details of the Tula Uzlovaya SEZ can be found here.

Moscow Dubna SEZ
The Dubna SEZ is based close to Moscow and consequently to the major transport infrastructure of the country. It is a hi-tech scientific zone, handling fundamental and applied sciences, medical equipment and communications. It provides zero profits tax rates, discounts on social welfare, and 0% property and land taxes, in addition to duty-free imports.

The Dubna SEZ details are here.

Moscow Istok SEZ 
Istok SEZ is a technology and development zone, concentrating on microwave electronics, laser engineering and complex systems designing, and houses two research institutes, the Russian Academy of Science and the Institute of Radio Engineering. The SEZ covers 1.4 sqkm and provides significant discounts on income and other taxes.

Details of the Istok SEZ can be found here.

Moscow Stupino Quadrat SEZ
The Moscow Stupino Quadrat SEZ covers over 1000 ha of industrial land and specializes in industrial and technological developments across a wide range of industries. The SEZ offers income tax reductions to 2% for the first eight years of operations, in addition to many other discounts against property, land and other taxes. The SEZ includes a bonded zone and the usual duty allowances on VAT and import-export.

The Moscow Stupino Quadrat SEZ details can be found here.

Moscow Technopolis SEZ
This SEZ is sited in the Zelenograd area of Moscow, covers 207 ha, and handles investments into hi-tech industries, including micro-electronics, biotech, robotics, medical devises, and energy efficiency. It provides 2% profits tax for ten years, zero land and property taxes, discounts on social insurance and zero import duties.

The Moscow Technopolis details are here.

Murmansk SEZ
Murmansk is a Port city close to the borders with Norway and Finland, and the largest Port in the Arctic Ocean. The SEZ is involved in logistics in the shipping industry, and also provides support to fishing and processing industries. At present, given the situation concerning European sanctions and a lack of raw material processing facilities, the SEZ has been shuttered until more favourable economic conditions arise.

Tver Zavidovo SEZ
Tver is north-west of Moscow, and is situated at the confluence of the Volga and Tzertsa Rivers, giving it navigable waterway access. Tver’s most notable industries are rolling stock, excavators, and glass manufacturing, and it is connected to both Moscow and St.Petersburg by road and rail. The SEZ covers 380 ha and provides reductions on income, property and land taxes.

Details of the Tver Zavidovo SEZ can be accessed here.

Kaluga SEZ
Kaluga is 150km south-west of Moscow and an important center of the Russian automotive industry, with several foreign companies opening assembly plants in the SEZ, including Volvo and Peugeot. Both cars and trucks are produced here both for the Russian and Eastern European markets. The SEZ provides significant profits tax incentives in addition to discounts on VAT and duty free items, as well as discounts on property and land taxes. It is well connected to Moscow by rail and road.

Details of the Kaluga SEZ can be found here.

Pskov Moglino SEZ
Pskov is close to the border with Estonia and directly connected to Moscow via rail, road and river. It has a centuries old trading history, and today is a centre for automotive works, in addition to electric equipment production for cars, lorries buses and tractors (relays, switches, fuses, electronic articles). It covers 215 ha and offers discounts on profits and related taxes.

Details of the Pskov Moglino SEZ can be found here.

Zelenograd SEZ
Zelenograd is home to the National Research University of Electronic Technology (MIET), and a major Russian centre for integrated circuitry. The Zelenograd SEZ consists of 2 areas: Area “Alabushevo” (141.87 ha), a main area for new plants and research centers; and Area “MIET” (4.47 ha), a technology park (mostly MIET spin-off enterprises). It covers 150 ha, and offers significant discounts on profits taxes and related overheads.

Details of the Zelenograd SEZ can be accessed here.

St.Petersburg SEZ
The St.Petersburg SEZ is on the Baltic Sea and provides shipping access to the EU. It is divided up into different sections, the Noydorf area being an engineering and IT based zone, while the Novoolovskaya zone is also engineering and experimental industrial based. The SEZ offers a reduced profits tax rate, reductions on social insurance, land and property taxes, and duty free importation.

The St.Petersburg SEZ details are here.

Kaliningrad SEZ
Kaliningrad is a Russian enclave on the Baltic Sea coast and surrounded by the European Union. It offers 0% profits tax for the first six years of operations, followed by a reduced rate of 10% for the next six. It also provides reduced social insurance, land and property taxes and zero import duties. It is possible to obtain 8 day electronic visas for the region (check for qualifications).

The Kaliningrad SEZ details are here.

As can be seen, Russia offers a large variety of SEZ, although as mentioned many of these are designed to allow foreign manufacturers access to the domestic Russian market. This is beginning to change however, and we can expect to see the development, or re-positioning of SEZ nearer to Russia’s borders to allow foreign and Russian manufacturers to consolidate Russian and globally sourced component parts for consolidation into finished articles for export. This will be especially true of Vladivostok and I suspect that additional zones will be added closer to Chinese cities such as Mudanjiang, Harbin and Manzhouli, where the Chinese are already building similar areas.

Russia has also been engaging in developing SEZ outside its territory, to take advantage of lower costs, materials and operating conditions (Northern Russia in winter is extremely cold) and is doing so in regions such as Port Said in Egypt and is holding discussions with India to do the same.

Although Russia has been hit to some extent by sanctions, the SEZ it has do offer a wide ranging set of services, with particular expertise in IT, high-tech and the auto industries. Foreign companies considering using Russian SEZ’s may do so both for accessing the domestic market as well as markets elsewhere in China, Central Asia and Eastern Europe.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 27 years of operations in China and assists Russian and Foreign investors establish operations into the country. Please contact us at russia@dezshira.com or visit us at www.dezshira.com

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