Draft Law on Territories of Priority Socio-Economic Development

by K&L Gates LLP
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In April this year, the Government of the Russian Federation (Russian Government) released a legislative bill “on the territories of priority socio-economic development and other measures of state support of regions of the Far East” (Draft Law). As of May 21, 2014, the Draft Law has not yet been submitted to the Duma of the Russian Federation (the lower chamber of the Russian legislative body). However, once submitted to the Duma, it may be expected that the Draft Law would be reviewed and adopted within a relatively short time, as is usually the case with legislative bills submitted by the Russian Government.

The territorial scope of the Draft Law is limited to the regions of the Russian Far East1 and contemplates the establishment of so-called “territories of priority socio-economic development” (Accelerated Zones). Each Accelerated Zone is established by a resolution of the Russian Government.

The Draft Law introduces only the general framework for the establishment and operation of Accelerated Zones, without specifying the exact amounts of the benefits (such as tax benefits, etc.) that will be made available to the companies operating in the Accelerated Zones. The exact amounts of such benefits will be set forth in each respective act of the Russian Government establishing an Accelerated Zone on a case by case basis.

The Draft Law sets forth the procedure for the establishment of Accelerated Zones by the Russian Government and the legal status of investor companies (foreign and Russian alike) operating in an Accelerated Zone (Residents).

Here are several of the benefits available to Residents of Accelerated Zones: 

  • simplified regime of development of land lots within the Accelerated Zone 
  • lower rent for leasing of federal, regional and municipal lands and facilities 
  • tax benefits and benefits related to mandatory social insurance payments 
  • lower one-time charges for connecting to water, electricity, other utilities 
  • free customs zone (in certain cases - at the discretion of the Russian Government) 
  • simplified procedures for employment of foreign staff (quotas for employment of foreign citizens will not apply; an employer will not need to obtain a special permit allowing employment of foreigners) 
  • simplified procedures for the approval of design documentation of factories and other facilities 
  • centralized issuance of building permits and commissioning of newly constructed facilities 
  • simplified procedures for the establishment of easements on land lots for the purposes of laying infrastructure.

Each Accelerated Zone is managed by a managing company wholly owned by the Russian Government (Managing Company) and supervised by a specially designated federal body. It is anticipated that the Ministry for the Development of the Russian Far East would be designated as such body (Competent Authority). The Managing Company, among others, develops the infrastructure of the respective Accelerated Zone with funds provided by the federal, regional and municipal budgets. The Competent Authority grants building permits and commissions new buildings, approves requested changes to the category assigned to land lots in the respective Accelerated Zone, approves the types of operations (ie land use) permitted on the land lots in the respective Accelerated Zone, adopts general plans for the development of municipalities.

A company that plans to become a Resident of an Accelerated Zone is required to file an application and a business plan with the Managing Company of such Accelerated Zone. If the decision of the Managing Company after considering the application is favorable, the Managing Company would offer to the applicant an opportunity to conclude an agreement to allow its operations in the Accelerated Zone (Agreement). After the conclusion of the Agreement, the Managing Company would register the new Resident in the register of Residents of the Accelerated Zone.

Pursuant to the Agreement, a Resident would undertake to carry on certain operations and make investments in such amounts and in such time periods as set forth in the Agreement. The Managing Company, in its turn, would undertake to provide to the Resident land and facilities (if required by the Resident). The maximum term of the Agreement would be 10 years, with an option to extend one-time for an additional five-year term.

The Agreement may be terminated early by a decision of a competent Russian court in cases of major violations by the Resident of the terms of the Agreement (such as failure to start business operations as planned, failure to meet the investment volumes scheduled in the Agreement).

In general, an Accelerated Zone is intended to function as a self-sufficient unit with full infrastructure, from factories to housing and schools.

The integration of the Draft Law into Russian legislation would require considerable amendments to the current tax, town-planning, land, and other provisions of the Russian legislation. It is, therefore, quite possible that the Draft Law may be revised before it is finalized by the Russian Government for submission to the Duma for consideration.

[1] The following Far East regions are covered by the Draft Law: Sakha Republic (Yakutiya), Primorsky Region (Krai), Khabarovsky Region (Krai), Amurskaya Region, Kamchatsky Region (Krai), Magadan Region, Sakhalin Region, Evreyskaya Autonomous Region, and Chukotskiy Autonomous Region.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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