Tax advantage in Russia’s Silicon Valley

Russia’s Skolkovo To Have Own Tax Regime The head of the Russian ‘Silicon Valley’ project at Skolkovo, Victor Vekselberg, has given an interview to Vedomosti, in which he describes the project and its planned tax privileges in more detail. Skolkovo will have its own special legal regime, he said, which will be managed and funded by a non-profit making foundation rather than a city council. Companies in residence, will be exempt from income taxes on property, and have lower rates of social security contributions,” said Vekselberg, adding that he had sometimes had to raise his voice when discussing tax privileges with the Ministry of Finance. Enterprises should be eligible for duty-free importation of equipment – or subsidies to compensate for duties. According to the draft terms still to be agreed, preferential tax treatment would be given for unspecified periods of up to 10 years, or until annual revenues reached RUB3bn during which time there could be zero taxes on income, property, land, and transport, and no VAT.

Vekselberg said that he would be the first president of the foundation, assisted by co-sponsors on the foundation board of trustees, which would include representatives from the Russian Academy of Sciences, Rusnano, Vnesheconombank, the Russian Venture Company, a Fund for Assistance to Small Innovative Enterprises in the scientific and technical sphere, the owner of the land (а state-sponsored housing association), as well as an association formed by universities. Vekselberg did not exclude the possibility of adding foreign sponsors to the list in due course.

The community is expected to grow to 25,000-30,000 people and premises for postgraduate and doctoral research will be constructed, which should also encompass laboratories, housing, offices, kindergartens, schools and hospitals. The construction alone, excluding research funding, should involve expenditure of USD2bn.

Vekselberg described the construction as low-rise, environmentally friendly and energy efficient. Funding for the first 30 months may reach RUB50-60bn (USD1.7bn-USD2.0bn). It would be state funded and financial contributions from co-sponsors would be minimal. Local services would also be state funded.
The foundation will provide grants for some projects. Companies whose projects are supported will be able to rent premises virtually at cost and will be given tax, customs and other privileges. This way, Vekselberg said, companies will be able to concentrate fully on research without being distracted by bureaucracy and formalities.

A streamlined procedure for the transfer of land would be introduced, which would shortcut planning permission formalities. Import formalities would also be streamlined. Some projects would not have to meet performance criteria, promised Vekselberg; for the first time in Russia, projects may be allowed to fail. In the West, Vekselberg concluded, two successful start-ups out of 10 would be regarded as a satisfactory outcome.

The project is not without its critics, however. Vedomosti quoted, for example, Sergei Mitrokhin, leader of liberal party Yabloko, as saying: “It will be a kind of state corporation, a sinecure; and with the absence of local government (which is in fact unconstitutional), activity will be completely out of control.”