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Recommendations of the leaders of the World Association of export processing zones to create SEZ

Managers Association R. Bolin, and P. Heywood, having studied the experience of creating free economic zones in different countries, prepared recommendations for the development of a draft law on SEZ in Russia. The materials consist of six chapters: the purpose and scope of the law, the establishment and management of BMS, benefits to users zone, currency controls in the SEZ, the right to participate in the SEZ, other conditions. The authors consider the recommendations that foreign investment contributes to economic development by increasing production and exports, transfer of advanced technology, increase productivity, regional development, remote from the center of the country, creates a stable source of additional income for the state budget. To create a SEZ and the achievement of these results need to prepare an appropriate legislative framework, as well as have the administration of the zone, which guarantees investors the stability and security of their activities. To control zone should be organized, the Governing Body with the corresponding rights and responsibilities.

In the free economic zones there are no taxes and duties on imports and exports of equipment and materials used in the production of export goods, which ensures ROI. Firms, investors tend to guaranteed tax holiday ranging from 5 to 35 years. In some cases, this period has no definite boundaries and coincides with the period of export production. There are different options of forming relations management zones with foreign businessmen and workers, but most of SEZ preferential tax applies both to their property and income.

Foreign and Russian investors should have the choice of location of business. The determining factors for selecting them are production and transportation costs, channels and sales geography, environment, reliability and ease of management.

Infrastructure projects necessary for the preparation of the site BMS can be financed from foreign sources and the state budget. Costs, which at first is the state budget, usually compensated in the first five years.

Experts say that creating SEZs, one should consider the requirements of the law, and not follow the ever-changing decisions of the executive branch.

R. Bolin, and R. Haywood believe that the establishment of SEZ should not be carried away by giant plans. In the first stage in Russia should focus on creating ten free zones area not more than 350 hectares each. SEZ can be established in regions that have sufficient infrastructure to support investment activities of foreign entrepreneurs.

The law on free economic zones should include a detailed plan section on benefits. It useful to indicate that entrepreneurs zone are exempt from customs duties and taxes on importation into the territory of FEZ raw materials, capital equipment and other resources necessary to ensure effective use of investments. The authors of the recommendations emphasize that this is – the first standard rule for any SEZ.

The second standard rule of any free economic zone is that area businesses are exempt from export taxes, duties, export payments, export quotas, the value added tax, special taxes and any other export restrictions, except for approved international agreements on goods produced or collected in the SEZ and exported from the territory of Russia.

On the materials imported into the zone from the customs territory of Russia, to impose the same fees and restrictions, as well as exported from Russia similar goods. Goods imported into the customs territory of Russia from the territory of the zone are subject to taxes, duties, quotas adopted for imports of similar products, taking into account the fact that the value added within the zone is considered as value added in Russia, therefore she is not subject to customs duties and taxes in the value of goods imported from abroad. This encourages capital investment in Russia, providing access to Russian markets on terms not discriminate against domestic producers, but more profitable than those that are offered purely to foreign partners.

Entrepreneurs SEZ are exempt from income tax and profit tax for five years from the date of receipt of the first profit. Over the next five years, entrepreneurs zones subject to withholding tax at 50% off normal rates, while the amount of tax paid to all budgets, should not exceed 25% of the total income generated. After the second five-year period, entrepreneurs zone pay income tax at a rate common in Russia, but the income tax paid to all budgets, should not exceed 25% of income. In any period, if the tax rates exceed 25%, then all budgets, taxes are paid with a proportional reduction to a whole does not go beyond the norm of 25%.

These benefits apply to the global investment market in the case of these investments in the SEZ. They are designed to ensure return on investment at a time when investment risk is highest. These benefits can not be regarded as economic damage to the host, because otherwise the large foreign investment will not flow into the country and find a more appropriate niche somewhere in another country.

Managers and professionals coming to work in enterprises zones should be drawn up in law the rights and responsibilities. For example, imported goods are imported for the personal use of managers and professionals are exempted from customs duties or taxes, including VAT, to housing, to a certain number of cars, appliances and electronic equipment, which must be registered with the local customs authorities on importation into the customs territory of Russia. These goods must be exported from the Russian Federation or transferred to another person in the event of termination of professional work in the territory of Russia.

Goods whose value is bigger than the standard value in Russia, subject to the usual tax on imports. Local customs authorities have the right to cancel or reduce the amount of customs duties on goods personal use of foreigners, have become unusable, stolen, lost or in any other way have lost their value to the owner. Zone Administrative Committee may revoke the request of local customs document on tax exemption of foreign individuals and legal entities operating in SEZs, in case of abuse will be detected by customs privileges.

The authors of the recommendations considered advisable to clearly define the procedure for the use of land in the SEZ. In general, their recommendations do not go beyond the internationally accepted practice and as close as possible to the existing Russian legislation.


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Recommendations of the leaders of the World Association of export processing zones to create SEZ

Recommendations of the leaders of the World Association of export processing zones to create SEZ – part 2

The law on free economic zones should include a detailed plan section on benefits. It useful to indicate that entrepreneurs zone are exempt from customs duties and taxes on importation into the territory of FEZ raw materials, capital equipment and other resources necessary to ensure effective use of investments. The authors of the recommendations emphasize that this is – the first standard rule for any SEZ.

The second standard rule of any free economic zone is that area businesses are exempt from export taxes, duties, export payments, export quotas, the value added tax, special taxes and any other export restrictions, except for approved international agreements on goods produced or collected in the SEZ and exported from the territory of Russia.

On the materials imported into the zone from the customs territory of Russia, to impose the same fees and restrictions, as well as exported from Russia similar goods. Goods imported into the customs territory of Russia from the territory of the zone are subject to taxes, duties, quotas adopted for imports of similar products, taking into account the fact that the value added within the zone is considered as value added in Russia, therefore she is not subject to customs duties and taxes in the cost of goods imported from abroad. This encourages capital investment in Russia, providing access to Russian markets on terms that do not discriminate against domestic producers, but more profitable than those that are offered purely to foreign partners.

Entrepreneurs SEZ are exempt from income tax and profit tax for five years from the date of receipt of the first profit. Over the next five years, entrepreneurs zones subject to withholding tax at 50% off normal rates, while the amount of tax paid to all budgets, should not exceed 25% of the total income generated. After the second five-year period, entrepreneurs zone pay income tax at a rate common in Russia, but the income tax paid to all budgets, should not exceed 25% of income. In any period, if the tax rates exceed 25%, then all budgets, taxes are paid with a proportional reduction to a whole does not go beyond the norm of 25%.

These benefits apply to the global investment market in the case of these investments in the SEZ. They are designed to ensure the return on investment at a time when investment risk is highest. These benefits can not be regarded as economic damage to the host, because otherwise the large foreign investment will not flow into the country and find a more appropriate niche somewhere in another country.

Managers and professionals coming to work in enterprises zones should be drawn up in law the rights and responsibilities. For example, imported goods are imported for the personal use of managers and professionals are exempted from customs duties or taxes, including VAT, to housing, to a certain number of cars, appliances and electronic equipment, which must be registered with the local customs authorities on importation into the customs territory of Russia. These goods must be exported from the Russian Federation or transferred to another person in the event of termination of professional work in the territory of Russia.

Goods whose value is bigger than the standard value in Russia, subject to the usual tax on imports. Local customs authorities have the right to cancel or reduce the amount of customs duties on goods for personal use of foreigners, have become unusable, stolen, lost or in any other way have lost their value to the owner. Zone Administrative Committee may revoke the request of local customs document on tax exemption of foreign individuals and legal entities operating in SEZs, in case of abuse will be detected by customs privileges.

The authors of the recommendations considered advisable to clearly define the procedure for the use of land in the SEZ. In general, their recommendations do not go beyond the internationally accepted practice and as close as possible to the existing Russian legislation.


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