Background

On October 12, 2015, Federal Law of July 13, 2015 No. 212-FZ “On the Free Port of Vladivostok” (the “Free Port Law”) entered into force.

Alongside the Federal Law “On Rapid Social and Economic Development Zones in the Russian Federation” (also called the Advanced Special Economic Zones Law or ASEZ Law), the Free Port Law is meant to play an important role in the current overarching political agenda of improving the investment climate in Russia. As evident from its title, the law  primarily focuses on bringing foreign investors to the Russian Far East.

Key Provisions

Those investors that are willing to develop their business within the territories of the Free Port of Vladivostok may avail themselves of a number of benefits and incentives. A special governmental support and regulation and control regime will apply to the residents of the Free Port areas.

Free Port Area comprises the 15 largest municipalities in the south of the Primorsky Krai region, including the area of Vladivostok itself. The Free Port, therefore, extends to the most economically and socially developed districts in Primorsky Krai and cover over two-thirds of the Primorsky Krai’s population.

During the Eastern Economic Forum held in Vladivostok in early September this year, the President of Russia suggested that the Free Port regime should be further extended to other areas of the Far East of Russia. Amendments to the Free Port Law for this purpose are to be submitted for the consideration of the Russian Government.

Key benefits:

• Taxes and Tariffs. Free Port residents will enjoy preferential tax treatment. Specifically, income tax rates will not exceed 5% within the first five years of operation. Within the first ten years, the aggregate state insurance contribution rates will not exceed 7.6%, as compared with 30% where no benefits are applied.
• Customs Regime. The so called Free Economic Zone regime will apply to the Free Port areas, which as a matter of practice may result in zero customs duties for goods and equipment.
• Fast-Track Administrative Procedures. Administrative procedure timelines will be reduced and a “one stop shop” mechanism will be implemented.
• Relaxed Visa Requirements, as well as fast-track procedure for employment of foreign nationals.
• Control and Supervision. A special governmental auditing regime will apply to the Free Port areas. The supervisory board of the Free Port will be authorized to protect the residents from the excessive (unreasonable) attention of regulators.

What else

As an additional bonus, the Free Port Law provides for special regulation of medical and educational activities within the Free Port areas. Although the relevant regulatory framework is yet to be developed, this could be of particular interest to investors.

Conclusions

Introduction of the Free Port regime in Primorsky Krai is a landmark development not only for the region, but for the whole country. Consequently, many investors, domestic and foreign, have expressed interest in investing in the Far East and specifically in the Primorsky Krai region.

“Going Fareast” is not only becoming a business trend in Russia but indeed may have significant potential benefits for investors. However, one needs to carefully balance opportunities and the related risks in order to take such decision.

We would be glad to answer any of your questions in relation to the Free Port of Vladivostok regime.