A package of draft laws which improve the rules on Special investment contracts (hereinafter – “SPIC”) has been adopted. The amendments governing the rules for concluding SPIC came into force on August 13, 2019, and changes in the tax sphere start from September 2, 2019.
What is SPIC and who needs them?
The SPIC mechanism enables the investor to conclude an agreement with the government on the development or introduction of new technologies for the development of industrial production in Russia. At the same time, the government commits itself to maintaining the stability of the fiscal and regulatory framework and to granting tax benefits to the investor. Such an agreement also allows the investor to participate in public tenders without meeting localization requirements right away. This mechanism was introduced in Russia in 2015 and, according to the Industrial Development Fund, 33 contracts in diverse industrial fields with a total value of 434 billion roubles have been concluded since then (about 6 billion euros in various industries).
The new rules introduce significant changes to the current mechanism (SPIC 1.1).
Who can apply for a SPIC and what preferences will an investor get?
According to the new version of the law, SPIC conclusion will be held through an open or closed tender, and not in a simple application procedure. The subject of SPIC should be the development and implementation of modern technologies for mass production of goods competitive in the world market, and the Government of the Russian Federation will approve the list of such technologies.
In addition to receiving tax benefits at the federal and regional levels (e.g., setting the profit tax rate at the federal level to 0% and reducing the tax rate at the regional level) SPIC businesses can count on government support as a part of the implementation project. Investors are immediately granted “Made in Russia” status for products manufactured as a result of SPIC implementation and are also granted a delay in meeting localization requirements.
The adopted package of draft laws improves conditions for investors in many ways. The changes relate in particular to the following:
The term of contracts has been extended to 15 years if the amount of investments is up to 50 billion roubles; and up to 20 years if the amount of investments exceeds 50 billion roubles
SPIC can be concluded by investors with any capital investment (the minimum requirement for the amount of investment is cancelled)
The validity period of preferential profit tax rates is not limited; they will be applied for the entire duration of SPIC and for all project income
There are two alternative conditions for applying tax incentives to investors:
zero income tax rate will be applied only if the revenue from the SPIC subject is at least 90% of all income;
in case of failure to fulfil the criterion “90-10”, there is the possibility of separate income (expenses) accounting within SPIC framework.
It should be noted that the application of profit tax benefits is not limited in time but possible until the reporting period in which the SPIC ceases to be effective. However, the benefits are related to the level of government expenditure: government investments in the project are stopped if they exceed 50% of the investor’s investment in SPIC.
What does this mean for business?
SPIC attracts investors and is one way to participate in government procurement without meeting localization requirements. The adoption of these amendments should have a positive impact on the Russian industrial sector and create more favourable conditions for foreign investors. SCHNEIDER GROUP is ready to offer you services supporting SPIC conclusions, and also provide related tax and legal advice.
(c) the Schneider Group