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June
2007

Creation of Economic Zones to Boost Port Development

Сollective of authors, VEGAS LEX

The new Law on Amendments to Certain Legislative Acts on the Creation of Special Port Economic Zones was presented to the Duma (the lower chamber of the Russian Parliament) on March 15 2007.

The law provides for the creation of a new type of special economic zone in Russian ports; economic zones, such as manufacturing zones, technical zones and tourism zones, have previously existed only for certain limited types of business activity. The ports of Ust-Luga (in the region of Leningrad), Saint Petersburg, Murmansk, Novorossiysk, Vostochniy and Nahodka have applied for this new status.

Port zones will be created:

·         at seaports;

  • at river harbours which are open to international vessels;
  • at international airports; and

·         on territories designated for the contruction or development of a port.

Unlike other economic zones, which are limited to a maximum term of 20 years, port zones may be created for up to 49 years because they require long-term investment. The purpose of a port zone is to grant special benefits for entrepreneurs operating within it. In order to create such a zone, an application must be sent to the relevant state body. The application must be approved by the shareholders' meetings of the legal entities which support the development and own shipping or related infrastructure or other immovable property within the proposed zone

With the exception of state unitary enterprises, all legal entities which are registered within the proposed zone and have concluded an investment agreement on their activity in the zone with an appropriate state body will be considered residents of the zone. Residents are entitled to carry out activities relating to the operation of a port, as well the construction and redevelopment of port facilities or the operation of airport facilities, subject to the conditions of their investment agreements. The following documents must be provided in order to conclude an investment agreement in a port zone:

·         an application detailing:

  •  
    • the proposed port activity;
    • the area of land required for such activity;
    • the prospective investments to support the development; and
    • a guarantee of payment of dues to customs authorities;
  • copies of the entity's certificate of registration, tax certificate and documents of incorporation;
  • a business plan approved by the appropriate authorities and the lending bank;
  • copies of licences (if required); and
  • documents confirming the acceptance of a guarantee of payment of customs dues (if required).

The resident entity must guarantee payment of customs dues to the value of:

  • Rb30 million for activities connected with warehousing and storage of or wholesale trade in excisable goods, including foods or minerals;
  • Rb10 million for activities connected with the storage of or wholesale trade in non-excisable goods; and
  • Rb2.5 million for other port activities.

The resident entity's activity must be within the scope of its investment agreement.

The relevant authority's decision on the conclusion of an investment agreement with the applicant must be issued within 10 days (this period is extended to 30 days for the construction or development of a new port or airport). The law sets out an exhaustive list of grounds on which an application may be rejected, but provides that such rejection may be challenged in court.

Investment agreements must be concluded in writing for a period not exceeding the zone's remaining period of existence. Model investment agreements will be drawn up and approved by the state body with responsibility for special economic zones.

The law specifies the rights and liabilities of the parties to an investment agreement. A resident must carry on a suitable activity, provide investment funds and secure the payment of customs dues in accordance with customs legislation. The state body administering the zone must: (i) conclude agreements on land leases with the resident in respect of land within the zone and obtain registration with the Land Registry for the term of the investment agreement; and (ii) monitor the resident's compliance with the terms of the agreement. If the agreement provides for the construction or exploitation of port infrastructure, the resident must invest:

·         not less than €100 million (excluding intangible assets) for an agreement to construct new port infrastructure;

  • not less than €50 million (excluding intangible assets) for an agreement to construct new airport infrastructure; and

·         not less than €3 million for an agreement to reconstruct or develop existing infrastructure.

The resident must allow the responsible state bodies to inspect the works and provide any information requested in the course of the examination.

The resident may not assign its rights or obligations under the investment agreement to a third party.

The law allows the following activities to be carried out within the zone:

·         cargo-handling operations;

  • warehousing;
  • ship chandlers' activities;
  • vessel repairs, maintenance and modernization;
  • preservation of seafood;
  • pre-sale preparation of goods;
  • assemblage operations;
  • wholesale trade; and

·         monitoring activities within the zone.

The services provided by resident entities are exempt from value added tax. Other amendments to the Tax Code apply to the list of documents to be provided in order for the taxable base to be determined and exempt status confirmed.

Goods imported into the port zone for the construction, reconstruction or exploitation of port infrastructure must be declared in accordance with the customs regime. Declarations must be filed within 15 days of importation.


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