On August 28, 2020, the Russian Federal Law “On State Support for Entrepreneurial Activity in the Arctic Zone of the Russian Federation” entered into force. This alert provides an overview of the law's main provisions.
The Arctic Zone encompasses vast swaths of the Arctic Ocean, as well as a number of Russia’s constituent entities (Murmansk Region, Nenets Autonomous Okrug, Chukotka, Yamalo-Nenets Autonomous Okrug) and parts of such regions as Karelia, Komi, Yakutia, Krasnodar Krai, and Arkhangelsk.
The law introduces a new entrepreneurial status – the Arctic Zone Resident. To become one, potential applicants must meet all of the following requirements:
- Be planning to launch a new project or new types of activity in the Arctic Zone. That said, the project will only be treated as “new” if, as of the application date, the volume of previous capital investments does not exceed 25% of the total volume of capital investments envisioned by the project – excluding the costs entailed in obtaining any relevant subsoil usage rights;
- Be committed to making total capital investments of at least RUB 1,000,000;
- Register as an Individual Entrepreneur (IE), or register the respective commercial organization, within the territory of the Arctic Zone;
- Enter into the respective investment agreement;
- Be added to the Registry of Arctic Zone Residents.
The governmental body responsible for the terms of business registration, the application form and terms of the investment agreements, as well as the requirements governing the Residents Registry and the submission of pertinent information is the Russian Ministry for Development of the Far East and the Arctic.
However, another body will be responsible for accepting applications for entering into investment agreements, for entering into them, and administration of the Residents Registry – a management company to be approved by the Russian Government. It will also be vested with an interesting power – bringing claims and acting in court on behalf of Arctic Zone Residents.
And yet another body is being created – the Arctic Zone Public Council, tasked with monitoring the interaction between business and indigenous peoples, participating in the development of environmental protection measures, and drafting proposals aimed at improving the efficiency of the Russian Ministry for Development of the Far East and the Artic and the management company. On the whole, its functions appear rather declarative, with its composition and procedural regulations being the competence of the Russian Ministry for Development of the Far East and the Arctic.
Applications for entering into investment agreements must specify:
- The types of activity that are expected to be conducted (any activities not explicitly prohibited by a special Russian Governmental resolution);
- The territory within which the specified activity is expected to be conducted;
- The proposed term for which the investment agreement is to be entered into;
- Optionally – information on the desire to apply the customs procedure of a free zone.
State support measures for Arctic Zone Residents:
- State audits – no more than 40 hours/year for small enterprises, no more than 10 hours/year for microenterprises;
- In the event of the adoption of the relevant legislation at the corresponding level – federal, regional and local tax incentives;
- Reimbursement of a portion of the costs entailed in insurance premium payments to non-budgetary funds;
- Provision of subsidies for the reimbursement of loan interest rates, subsidies for the reimbursement of coupon yield payments on bonds;
- Relaxed requirements on urban development zoning, planning, design and construction;
- Application of the customs procedure of a free zone.
The law allows application of the customs procedure of a free zone in the Arctic Zone with some specifics.
The customs procedure of a free zone is a special customs procedure, which is applied in Free Economic Zones (“FEZ”). For the purposes of the procedure’s application, the Arctic Zone is treated as being equivalent to an FEZ. In order for the procedure to be applied, the FEZ territory (the Arctic Zone Resident’s territory, in this case) must be specially equipped and constitute a customs-control zone, that is – a territory with special regime.
The application of the customs procedure of a free zone entails the provision of customs payments relief, as well as exemption from non-tariff measures, that is – foreign goods are treated as if they hadn’t been imported from abroad. Goods subjected to this procedure may only be used within the special territory into which they were imported. Regular customs payments (where applicable) become payable upon the subsequent export of such foreign goods, or the products manufactured with their use, beyond the special territory to the rest of the Eurasian Economic Union.
This customs procedure is not available for certain types of goods, such as excise goods. Provided the observance of certain conditions, goods imported under this procedure can be transferred to other Arctic Zone Residents. And if the Arctic Zone Resident happens to be engaged in shipbuilding in the Arctic Zone, then under certain conditions, products made using the goods subjected to this procedure can even be transferred to persons who are not Arctic Zone Residents, with the procedural treatment of such goods as if remaining in the special territory.