The ship repair industry is dissatisfied with the conditions for applying the zero VAT rate

Ship repair enterprises, which in June received the opportunity to zero VAT subject to the conclusion of seven-year investment agreements with the state, are in no hurry to take advantage of it. Meanwhile, the option will close in a year. According to the industry, in order for investment agreements to work, their term must be increased to 15 years, the share of funds allocated for investments must be reduced from 20% to 10–15%, and the range of activities for which this money can be allocated must be significantly expanded. The Ministry of Industry and Trade is not against finalizing the terms, but only after the first investment agreements have been signed.

On December 1, the head of the RSPP, Alexander Shokhin, addressed the Ministry of Industry and Trade and the Ministry of Finance with a request to consider the proposals of the RSPP Commission on Fisheries and Aquaculture to finalize the order of the Ministry of Industry and Trade on the conditions for applying the zero VAT rate to ship repair enterprises.

Ship repair work was partially subject to VAT. Zero VAT was in effect for the repair of sea vessels, river-sea vessels and inland navigation vessels, but only applied to maintenance and a number of minor works, while repairs at docks and shipyards were subject to VAT at 20% (see Kommersant of January 17). In June, a law was passed exempting ship repairs from VAT. But only enterprises that enter into an investment agreement with the Ministry of Industry and Trade and the Ministry of Finance for seven years with an obligation to invest 20% of revenue in their development can take advantage of this. Such an agreement can only be concluded until December 31, 2024. In August, the Ministry of Industry and Trade issued an order on the procedure for concluding an investment agreement.

According to data presented at a meeting of the RUIE Commission on Fisheries and Aquaculture on October 24, in 2022, 40 large, 128 small and more than 500 micro-enterprises operating in Russia specialized only in ship repair, and 48 large, 91 small and about 370 micro-enterprises providing services ship repair, among other services. The total revenue from the repair and maintenance of ships and boats in the Russian Federation amounted to about 124 billion rubles, while the market volume has been decreasing since 2021.

The Russian fishing fleet numbers about 1.5 thousand vessels; small-tonnage seiners are mainly repaired within the country, notes the head of the RUIE Commission on Fisheries and Aquaculture, President of VARPE German Zverev. In the segments of medium- and large-tonnage, as well as transport vessels, less than half of the fishing industry uses the services of domestic ship repair yards. According to Mr. Zverev, participants in the commission meeting in October “drew attention to the lack of legal certainty of the terms of investment agreements, the decision period for their conclusion is too short (one year), and their validity period is insufficient for a return on investment (seven years).” According to him, the commission proposed to give the opportunity to conclude an agreement after the end of 2024, including for enterprises operating on the market for less than three years, and to increase the validity of agreements to 15 years. “In addition, we propose to expand the list of activities to which investments can be directed, for example, personnel training, repayment of loans and credits to replenish working capital, purchase of software, implementation of technologies, etc.,” he adds. “In total the package contains nine proposals.”

The Ministry of Industry and Trade told Kommersant that two ship repair organizations have expressed interest in concluding investment agreements in 2024. Chairman of the Board of Directors of Nordic Engineering Nikolai Shablikov says that the market is currently aware of one application received, it was sent for revision. He notes that the period for concluding investment agreements is actually limited to October 2024, since the order requires the submission of all necessary documents within 45 days. Such deadlines and the absence of the possibility of a conclusion after 2024 may lead to a restriction of competition: for example, the state customer will announce a tender in which the condition will be zero VAT, and it will turn out that only those companies that managed to submit an investment agreement before October 2024 will be able to participate. Also, according to Mr. Shablikov, it is necessary to expand the list of expenses allowed under the investment agreement: although capital construction projects are easier to administer, the key to success lies in strong production ties and the creation of repair clusters. In the ship repair industry, onshore facilities are traditionally on the balance sheet of the management company, and the shipyards that directly carry out the work lease them on a long-term basis, so it is necessary to provide for the possibility of investing in infrastructure on a long-term lease. The payback period should also be increased, notes Mr. Shablikov, recalling that Rosrybolovstvo, within the framework of investment quotas for fishing vessels, set a payback period of ten years.

President of the Association of Fishing Fleet Shipowners (ASRF), Alexey Osintsev, notes that additional tuning can be beneficial, “but it is important to understand all aspects.” “For shipowner customers, a zero rate for the services of a ship repair company is rather a minus; they lose the opportunity to offset “input” VAT,” he says, recalling that all the main cost items for fishermen, except for wages, are subject to VAT.

The Ministry of Industry and Trade told Kommersant that the conditions for zeroing out VAT can be changed only after amendments are made to the law. They added that they consider it appropriate to “consider the possibility of adjusting departmental acts and Federal Laws after the start of the implementation of several investment agreements in order to objectively analyze the need for such adjustments.”

Natalya Skorlygina