Relevant topics

2015 May 5

Free Port vs PDAs

The Far East of Russia is seeing parallel arrangements and elaboration of legal framework for Priority Development Areas and a Free Port. Sergei Nekhayev, Vice Governor of the Primorsky Territory, tells IAA PortNews about their common features and differences.

Russian President Vladimir Putin called on granting “free port” status to Vladivostok during his Annual Address to the Federal Assembly of Russia in December 2014. 

By today, the concept of the law on the Vladivostok Free Port elaborated by the Ministry for the Development of the Russian Far East has passed all levels of public debates and has been approved by the State Legal Department of RF President.

According to Primorsk Territory Governor Vladimir Miklushevsky, the Free Port status will let improve the logistics and transport links between Russia and Asia. As the presidential envoy to Russia's Far East Federal District Yuri Trutnev said, “the draft law will provide new opportunities for business. … Implementation of the project will double the GRP in five years”.

Actually, Free Port and Priority Development Area are different kinds of special economic zones, they have much in common but there are certain differences that are represented in the table below. It was provided to IAA PortNews by Sergei Nekhayev, Vice Governor of the Primorsky Territory. In our opinion, the main difference is in an alternative taxation system of the Free Port and in publicly funded infrastructure of the Priority Development Areas. PDA can be included into Free Port limits.

 

 

 

Areas of Priority Socio-Economic Development (PDA)

 

 

Free Port of Vladivostok (FPV)

 


Legal status

Federal Law No 473-FZ dated 29.12.2014 “On the areas of priority social and economic development in the Russian Federation”

 Draft federal law “On Free Port of Vladivostok (under development)


Definition

PDA — part of the territory of RF entity including the closed administrative-territorial unit with a special legal regime for business and other activities according to the decision of RF Government. 

FPV — part of the Primorsky Territory with state support of business and other activities.

Purpose

Development of favorable environment for investments, enhanced social and economic development and creation of favorable work and living conditions for the population

1) Cooperation of federal and local authorities, businessmen and investors for the development of Free Port of Vladivostok;

2) Benefit from geographical and economic advantages of the Primorsky territory and Vladivostok as eastern sea gate of Russia for integration into the economic space of Asia Pacific Region;

3) Development of international trade  with APR countries;

4) Creation and development of competitive production based on application of state-of-the-art technologies.

Territory

Nadezhdinsky, Mikhailovsky, Ostrov Russky, Zarubino, Petrochemical in Partizansky district.

Vladivostok, Ussuriysk, Artyem, Nakhodka, Bolshoi Kamen, Partizansk as well as Pogranichny, Nadezhdinsky, Shkotovsky, Khasansky, Partizansky, Khankaisky and Oktyabrsky districts.

PDA can be included into FPV

Period


70 years (both). The period can be extended by RF Government decision or a special law (for FPV)

Phase I (Nadezhdinsky) to be completed in Q4’ 2017.

FPV to start functioning in late 2015 – early 2016, upon completion of necessary legislation procedures.

Authorities

Supervisory Board (authorities, public members and business representatives)

Managing Company of PDA with regional branches.

Authorized Federal Body

Supervisory Board

Social Council

Necessity of a Managing Company is under discussion

Supreme body

Ministry for the Development of the Russian Far East

Criteria for investors



Set forth by RF Government for each PDA:

1) correspondence of economic activity to PDA specialization (for example, Nadezhdinsky's specialization is production and logistics. Far East Development Ministry expects some 30 investors here);

2) minimum investments (not determined);

3) minimum requirements to technologies and production methods applied (not developed)

Set forth by Supervisory Board:

 

The same, excluding specialization

Major requirements for residents

State registration in the Primorsky Territory

PDA residents are not allowed to have branches or representative offices outside PDA.

Organizations with the status of a ‘regional investment project participant’ cannot be a PDA resident.

 

FEZ or PDA residents, organizations with the status of a ‘regional investment project participant’ cannot be a FPV resident.

FPV residents can operate at PDAs within FPV territory, use infrastructure facilities of the Primorsky Territory’s PDAs under lease or other agreements

Budget investments  (infrastructure)

Infrastructure development is funded from the budget.

No infrastructure development is supposed

Customs regulation

Customs regulations

Free customs zone (FCZ) to be established within PDA limits at the land plots of the residents. Each resident (or a group of residents) should arrange a fenced territory with a customs point.

FCZ can be established within the limits of all municipal entities included into FPV upon residents’ application and in compliance with special requirements (see PDA).

‘Open skies’ regime

Charges and payments

No customs dues for goods entering FCZ, export goods and goods manufactured with the use of imported products (outside Customs Union).

No customs dues for goods entering FCZ, export goods and goods manufactured with the use of imported products (outside Customs Union).Перемещение товаров из одной СТЗ в другую в границах свободного порта не облагается пошлинами.

Exemption from customs dues for movement of goods for personal use is being considered.

Operation

 

One-stop principle for all border control procedures.

Principle of best practices of APR

Visa regime

 

7-day long visa-free stay is to be allowed for foreigners entering the Russian Federation via the international airport Vladivostok, seaports within FPV and automobile border-crossing points Pogranichny, Poltavka and Kraskino.

Employment


Foreign citizens can obtain work permit beyond the quotas of the Directorate of the Federal Migration Service.

RF citizens have a priority (all factors being equal).

Activities of resident companies’ employees are regulated by RF Labor Code

Attraction of migrant workers is stipulated by contract terms

 

Medical and educational activities


Licensing of educational activities within PDA in order to apply best foreign practices and authorization of foreign medical workers

Operation of foreign medical organizations (residents) are allowed in accordance with the procedure specified in the Federal Law.

Tax privileges

Income tax

Federal part – 0% for 5 years;

Regional part according to the entity’s legislation:

0% — for first 5 years; 10% —  for next 5 years

Federal part – 0% for 5 years;

Regional part according to the entity’s legislation:

0% — for first 5 years; 10% —  for next 5 years

Property tax

According to the entity’s legislation: 0% - for first 5 years; 0.5% - for next 5 years.

 


Declarative formalities for VAT (15 days)

Declarative formalities for VAT (15 days)


Special coefficient for MRT calculation: 0% - for first 24 tax periods, up to 1% throughout several years

 

Alternative taxation

Not supposed

Uniform tax – 10%. (Can be reduced to 6% by a regional legislation)

Social dues, for 10 years (in total and per fund)

                                                     7.6%

7.6%

Currently:

           34%

 

Pension Fund

6%

6%

26%

Social Insurance Fund

1.5%

1.5%

2.9%

Federal Compulsory Medical Insurance Fund

0.1%

0.1%

5.1%

Yevgeny Pankratyev, Vitaly Chernov