The Bi-Monthly Magazine of the American Chamber of Commerce in Russia
St. Petersburg Attracts Investments |
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In recent years, St. Petersburg has attracted more and more investments, thanks mainly to the coordinated efforts of the St. Petersburg government to promote the city’s image in the international business community.
As part of this strategy and with growing interest in investments in Northwest Russia, the city government has organized numerous events in the country and abroad to promote the economic, industrial, infrastructure and labor potential of St. Petersburg.
Another important reason for the city’s investment success is its tax legislation. Although federal law imposes strict limits on regional tax breaks, the city has introduced a wide range of tax incentives for investors and, just as importantly, established a quite simple procedure for applying them. This makes St. Petersburg stand out among many other regions in Russia.
Currently, investment tax incentives are aimed at relatively small- and mid-sized investors and provide a profits tax reduction from 24 percent to 22 percent for investments into production assets of between RUR 150 million and RUR 300 million (approximately $5.5 million and $11 million, respectively), and to 20 percent for investments of over RUR 300 million. In addition, the property tax rate is cut by half for both categories of investors. These tax benefits are valid for three years.
Recently, the city’s legislative assembly gave its support to a new initiative from the St. Petersburg government to offer bigger tax incentives to strategic investors starting on Jan. 1, 2007. To qualify for this category, investors need to make investments of at least RUR 3 billion (approximately $110 million) into production assets. The property tax rate for these investors is reduced to zero and the period of tax incentives is increased to five years. Since a 20 percent profits tax is the minimum rate allowed by federal law, strategic investors have the same profits tax rate as smaller investors.
Although this initiative is aimed primarily at attracting large manufacturing investment projects, it should help to develop secondary industries as well, which is no less important.
A valuable benefit of the incentives for strategic investors is that they allow charter capital contributions to qualify as investments. This permits multinational companies to combine regional tax incentives with federal customs benefits for production assets imported as an in-kind contribution to the charter capital of Russian subsidiaries.
An overview of the tax investment climate in St. Petersburg would not be complete without mentioning that the city won a tender to set up a special economic zone for research and development companies. The residents of the zone are eligible for various tax incentives, including profits tax, property tax, unified social tax, land tax and customs duties to significantly reduce the overall tax burden of these companies and make the zone attractive for investors.
Apart from regulatory initiatives to improve the investment climate and contribute to stability in the region, there is a clear trend towards closer interaction between city government bodies and business. The American Chamber of Commerce in St. Petersburg has regular meetings with the St. Petersburg government, where representatives of existing and potential investors openly discuss pressing topics and share ideas on how to improve investment conditions in the region. A good example of this cooperation is the AmCham Tax Committee’s recent work on the draft bill on tax incentives for strategic investors.
St. Petersburg ’s investment potential, tax incentives and city hall’s investor-oriented policy have already attracted a number of strategically important Russian and multinational companies to the region, the biggest being automotive giants and their suppliers.
This is only the beginning of St. Petersburg’s journey to gaining a reputation as one of the most attractive regions for investments in Russia and internationally.
