The State Duma adopted a law on additional adjustment of the regime of special administrative districts on the Russky and Oktyabrsky islands
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The State Duma adopted a law that further softens the conditions for companies moving to special administrative regions (SARs) by expanding the methods for investing funds of businesses returning from foreign jurisdictions in order to receive tax benefits due in “Russian offshores”. In addition to direct investments in infrastructure, international holding companies (IHCs) will now be able to simply donate funds for its construction to the host region or transfer their movable property to it.
Yesterday, the State Duma immediately approved in the second and third readings a bill that continues to set up the regime of special administrative districts on the islands of Russky in Primorye and Oktyabrsky in Kaliningrad, which were created to return capital to Russia. The document, introduced in the spring by a group of senators, introduces additional investment tools to obtain tax benefits. Now, in order to receive preferences (this, in particular, preferential tax rates on dividends, interest and royalties in the amount of 5% on income received and 10% on income paid), international holding companies must invest at least 300 million rubles. per year to the infrastructure of the region where the SAR is located, acquire an office of 50 sq. m and have at least 15 employees on staff.
According to the adopted law, in addition to investing in infrastructure, a resident can now make the necessary investments by transferring movable property to the region or municipality, in particular, equipment and machinery (except cars). Another option is donations to the region or an organization created by the authorities to support the construction or reconstruction of infrastructure facilities. Companies can choose one or more options – the region has a month to agree on the proposal or a reasoned refusal. The requirements for actual presence in the SAR have also been somewhat relaxed – the presence of an office and staff will be assessed not at the time of registration (which is very difficult), but on the date of receipt of income during the first tax period. At the same time, the opportunity to use offices outside the SAR, but within Kaliningrad and Vladivostok, is extended for two years – until 2028.
By the second reading, the draft was supplemented with relaxations regarding the use of tax benefits by companies whose foreign structures are located in countries from the “black list” of offshore zones of the Ministry of Finance. Let us remind you that this list was expanded from 40 to 91 countries by including all “unfriendly” countries and will begin to be applied in 2024 (see Kommersant of June 19). If it is applied, MHCs lose some of the benefits, for example, the right to a zero rate of income tax on the sale of shares or shares in foreign companies. In this regard, a transition period is being established for 2024–2026, during which a special list of offshore companies (similar to what was before the expansion, that is, listing 40 countries) will be used to apply benefits.
As Alexander Tokarev, a partner in the group providing services in the field of international tax planning and restructuring at Kept, notes, “the new law to some extent simplifies the life of MHC in terms of investing in order to receive tax benefits – now such companies will not need, for example, to build infrastructure facilities and transfer them to the region, you can donate the required amount, and the regions will independently decide how to spend it.”
Anastasia Vasilyeva, head of tax practice at NSV Consulting, believes that the changes will not lead to a sharp increase in the number of SAR residents, since interest in this regime is mainly associated not with benefits, but with current political realities. At the same time, the expert emphasizes, the amendments regarding the application of the special list of the Ministry of Finance actually “give MHC two years to get rid of the shares of “unfriendly” companies without tax consequences – the business asked for a transition period, since there is clearly not enough time to prepare its structures for the new conditions “
What other innovations have appeared in the law?
In 2022, not only foreign but also Russian companies were allowed to become residents of the SAR (see “Kommersant” dated February 17, 2022). With the adoption of the amendments, the possibility of their moving from federal cities (Moscow, St. Petersburg and Sevastopol) will be limited. Now they may not let go of a company whose contribution to income tax is 1%. With the amendments, this figure is reduced to 0.1%. At the same time, for other organizations that are not such significant taxpayers, the time in which it is necessary to warn the “home” region (this applies to any subjects) about the “move” is reduced – from six months to a month.
Lawyers have ambivalent assessments of these changes. As noted by Alexander Tokarev, a partner in the group providing services in the field of international tax planning and restructuring at Kept, ATS are more in demand for the redomiciliation of foreign companies, especially from European jurisdictions (primarily Cyprus). TeDo tax practice partner Galina Naumenko, on the contrary, notes the interest of a number of Russian companies in this regime, but the six-month period “makes this option almost unworkable.” However, adds Anastasia Vasilyeva, head of tax practice at NSV Consulting, restrictions for federal cities will reduce the number of people wishing to move, since there is little point in the authorities letting taxpayers go.
At the same time, by the second reading, provisions appeared in the text of the law regarding transactions for the transfer to Russian beneficiaries of direct ownership of shares and shares in economically significant organizations (ESO) – as part of excluding foreign holding companies from the chain of ownership. Let us remember that we are talking about companies that meet one of the criteria: annual revenue is more than 75 billion rubles, the value of assets is more than 150 billion rubles, the staff is more than 4 thousand people, the company’s work in critical industries, as well as the corresponding the share of direct or indirect participation of Russian beneficiaries in a foreign holding (as a general rule – more than 50%; see “Kommersant” dated November 13). According to the adopted law, it is planned to ensure the tax neutrality of such transactions – in particular, they will not be subject to personal income tax and income tax, including in the case of transfer of assets not in the name of the beneficiary subject to sanctions, but in another person. According to Anastasia Vasilyeva, these are important changes aimed at providing support to ESOs and at leveling the adverse consequences faced by Russian beneficiaries of Russian assets structured through foreign layers.
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