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The Roscongress Foundation is a socially oriented non-financial development institution and a major organizer of international conventions; exhibitions; and business, public, sporting, and cultural events. It was established in pursuance of a decision by the President of the Russian Federation.

The Foundation was established in 2007 with the aim of facilitating the development of Russia’s economic potential, promoting its national interests, and strengthening the country’s image. One of the roles of the Foundation is to comprehensively evaluate, analyse, and cover issues on the Russian and global economic agendas. It also offers administrative services, provides promotional support for business projects and attracting investment, and helps foster social entrepreneurship and charitable initiatives.

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Special Administrative Districts: One Year on
4 September 2019
12:30—14:00
KEY CONCLUSIONS
Special administrative districts play an important role as Western sanctions are imposed on Russian companies

A number of aims have been incorporated in the special administrative district project [areas with a favourable tax regime for investors, – Ed.]. Firstly, these are to repatriate capital and protect business from restrictions imposed from outside Russia. I believe that sooner or later, these aims will be accomplished. It is just a question of time — Nikita Soshnikov, Head of Branch in Vladivostok, Deloitte, Russia.

Work will continue to improve these regimes, because we see that even now, one year on, special administrative districts are in reasonably high demand, both on Oktyabrsky Island, and Russky Island — Andrey Gorlenko, Executive Administrator, Russian Arbitration Centre at the Russian Institute of Modern Arbitration .

There is a need for Russian business to free themselves from dealing with foreign companies where it is possible to do so. It is too early to speak about fully avoiding them. Sometimes foreign companies play a vital role, but at the very least, large companies deal with dozens of companies they could do without. How can companies free themselves in this way? While it is difficult to do it via special administrative districts, it is riskier to do it via other means, which is why interest in these districts will grow — Galina Naumenko, Partner, Tax and Legal Services, PwC Russia.

ISSUES
An imperfect procedure for revaluing assets due to differences in exchange rates

Despite the fact that the special administrative district model is reasonably new (the first applications were submitted only in January this year), a specific amount of experience has already been accumulated, and we can already draw conclusions about the issues we have encountered. <...> I would highlight the discrepancy between the cost of launch in roubles – Russia’s currency – and in the currency of the country where the company was registered before the change was made to proper law. According to regulatory and legal statutes governing international companies, the exchange rate should be applied as per the date the articles of association were registered. However, in reality, other exchange rates are sometimes used — Mikhail Mamuta, Head of Service for Protection of Consumer Rights and Ensuring the Availability of Financial Services, Member of the Board of Directors, Central Bank of the Russian Federation.

In terms of areas where our regime is currently insufficiently competitive, I would primarily cite exchange rate taxation. Many European countries have two tools to solve this problem: the option to choose the functional currency <...]\> and the lack of taxation for differences in the exchange rate. Revisions concerning exchange rate differences is a principle issue, otherwise holding companies will experience severe turbulence — Marina Belyakova, Partner, EY.

The legal framework for special administrative districts is not yet fully developed

Business is waiting for simple measures: several requirements for registering foreign companies have been removed. The second important aspect is practice. Nobody wants to be a pioneer – everybody wants to see how this regime operates, what its prospects are, and what requirements the regulator has — Nikita Soshnikov, Head of Branch in Vladivostok, Deloitte, Russia.

Resolving potential disputes for companies in special administrative districts is a crucial issue when it comes to them considering whether to redomicile themselves — Andrey Gorlenko, Executive Administrator, Russian Arbitration Centre at the Russian Institute of Modern Arbitration .

For parties to have legal certainty, you must be able to know which arbitral institutions are empowered to administer which disputes, so as to avoid disputes arising within disputes, which can cost a lot of time and a lot of money. And I am aware that there has already been a dispute by one of the corporations established or registered here. And one of the issues which came up in that dispute was whether or not the administering institution in London was able to effectively administer that dispute — Sarah Jane Grimmer, Secretary General, Hong Kong International Arbitration Centre.

SOLUTIONS
Improving the regime at special administrative districts

Interest in special administrative districts is growing with each passing day. We are delighted to see this, but at the same time, we understand that we have to do more, and we have prepared a so-called third package of improvements. What does this encompass? First of all, it involves increasing the number of countries where companies qualify for redomiciliation — Ilya Torosov, Deputy Minister of Economic Development of the Russian Federation.

We are at the very beginning of this path, and our current experience is insufficient to draw any final conclusions, or rather a sketch outlining the current state of affairs. But given what we have already seen, it is clear that the legislation needs to be improved. And since we can see that there is a demand for this form, by which I mean form of incorporating a legal entity, I imagine that if the legislation is subsequently improved and this beneficial regime is preserved, this area could – and in all likelihood, will – develop — Mikhail Mamuta, Head of Service for Protection of Consumer Rights and Ensuring the Availability of Financial Services, Member of the Board of Directors, Central Bank of the Russian Federation.

Most countries’ legislation includes provisions for a company to receive prior approval for their deregistration. It is crucial to abide by this — Galina Naumenko, Partner, Tax and Legal Services, PwC Russia.

Improving the investment climate at special administrative districts

Regarding the initial experience of companies which have already become part of special administrative districts, all of them have said that the idea of a one-stop shop for dealing with the management company has been a positive one. And management companies are interested in new residents — Galina Naumenko, Partner, Tax and Legal Services, PwC Russia.

The most burning issues for business are to do with taxes. We understand that we are speaking about international companies, and of course, the question of tax incentives, of a favourable tax climate for participants of special administrative districts, is one of the most important aspects — Andrey Gorlenko, Executive Administrator, Russian Arbitration Centre at the Russian Institute of Modern Arbitration .

Corporate rights and protection of the investor are the foremost things which are assessed, but the tax regime is also a vital factor — Marina Belyakova, Partner, EY.

Raising awareness among businesses of the features of special administrative districts

Should a business have questions regarding specific aspects of the procedure, I would advise writing to the Ministry of Economic Development. We will provide an official response with my signature within a week. It will clearly outline everything, and the information can subsequently be presented in print form — Ilya Torosov, Deputy Minister of Economic Development of the Russian Federation.

The material was prepared by the Russian news agency TASS