Special investment contract version 2.0 – changing the mechanism to attract new investors

Special investment contract was first introduced in 2015 (by Federal Law from December 31, 2014 No. 488-FZ “On Industrial Policy in the Russian Federation”) to encourage investments in industrial projects by means of providing special incentives to investors.

As it was mentioned earlier, in fact over the years Special Investment Contract (hereinafter referred to as Contract) became popular among foreign investors and such contracts were concluded with the Government by producers of agricultural machinery (German producer CLAAS), car manufacturers (Mazda, Daimler, Hyundai), pharmaceutical producers (AstraZeneka, Sanofi-Aventis), machinery producers (Gildemeister) and equipment producers (German company WILO, wind turbine producer Vestas) and even local investors.

The main incentive for foreign producers was that products of those who concluded were recognized as locally produced and such “Made in Russia” products were eligible for preferential customs treatment, including possibility to supply to state as sole supplier.

In addition to that such contracts provided a stabilization clause protecting investors from negative change in law, including tax law, for a period of a contract, which initially could be concluded for a maximum of 10 years.

However, the procedure for conclusion of such contracts was regulated by acts of the Government and not the law, was not competitive and required a minimum of investment of 750 mln RUR (approx. 10 mln EUR), which was relevant not for all projects.

Today the Government of Russia approved amendments to the existing mechanism to make it more open, transparent, competitive and therefore more attracting for investors, including:

1. Procedure for conclusion of Special Investment Contracts will be regulated by a special Federal Law, not acts of the Government;
2. Contracts will be signed with the best bidder as a result of a competitive tender procedure
3. Contracts will be focused on new technologies, which are not present in Russia yet
4. There will be no minimum requirement for the amount of investment (previously 750 mln. RUR (approx. 10 mln EUR)
5. Maximum term of the Contract will be increased from 10 years to 15 years and even 20 years (for projects with investments above 700 mln EUR), whereas state may provide up to 50% of investment as subsidies etc.
6. Tax incentives, including up to 0% profit tax, reduction of land tax, property and transport tax.

Those who have new technology, which has a potential in the large Russian market, are now welcome to invest even small amounts and get from the Government in return all the benefits and incentives, which were previously available to large-scale investors only.

If you have any questions on the matters referred to here, do not hesitate to contact Dr Artem Rodin.