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Business in the Crimea and business with the Crimea

The Government of the Russian Federation decided to create Special Economic Zone in the Crimea. The entrepreneurs decided to set up a business at the peninsula’s territory will be using tax holiday for the nest 25 years.

Affiliation of the Crimea into the Russian Federation on the 18th of March, 2014 became a real historical event for both for multinational people of Russian and the people of the Crimean peninsula. Considering ethnic composition of the Crimea, which is a historically Russian region, and almost unanimous results of the Crimean affiliation to Russia referendum, we can say for sure that this uniting was an essential and long-awaited decision for both parties.

However after the affiliation the Russian Federation met some problems, for example, with low quality of life and wage rates, underdeveloped social sphere, and low economic development of the region. The fact that the formerly All-Union recreation area, the Crimean health resort, had almost no travel industry also became a strange disclosure. Unimproved beaches and ghost villages, poor service standards and non-relevant pricing policy of the people seemed to be non-competitive in comparison with other regions. Despite this during the last two years we can see a positive dynamics in the region: level of the tourist service grows, resort towns and villages are filled with people, camp accommodation and infrastructure facilities are building.

Speaking about business and banking sphere in the region, it is worth mentioning that undoubtedly the situation became more complicated because of the sanctions introduction, according to which EU and USA entrepreneurs have no right to invest money and set up a business at the territory of the Autonomous Republic of Crimea and city of Sevastopol.

Because of this the Russian Government made a decision to set up a federal program of support for the Crimea and creation of Special Economic Zone. The entrepreneurs, who decided to set up a business at the territory of the peninsula, will have a real tax holiday for the next 25 years. Comfortable tax facilities will affect different aspects of business, and for this reason businessmen even today collect the necessary documents for becoming the program members.

The Crimean peninsula is declared to be Special Economic Zone until the 2040th, and it is very favorable factor for business development in the Crimea and for the attraction of investments to the economy of the republic.

The most attractive Crimean Special Economic Zone terms for the attraction of investments are the preferences for different business lines as the following:

– maximum 2% income tax rates for the first 3 years of business;

– 7,6% insurance contributions rate for the first 10 years;

– 0% corporate property tax rate for the first 10 years;

– 0% tax rates until the 2016th and then 4% tax rates for the nest 5 years using STS.

These and other tax benefits and privileges are intended to stimulate the economic development of the peninsula and attraction of the investors to the region. The Russian Government tends to set up new impetuses and facilities for the regional business, to help the businessmen to adjust to the Russian laws and current situation.

In spite of politic and economic risks and sanction sentiment among west partners, entrepreneurs should consider that the Crimea is a strategically important subject of the Russian Federation, and because of it the Russian Government will do its best, even impossible, to improve the region economy reinforce its positions. In the vast majority the Crimean people are the supporters of acting government policy, which is also a great motivation for the region development.

Moreover, tax loyalty in regard to different types of business activities at the Crimean peninsula is extended not only to Russian businessmen, but also to foreign business-partners. This fact creates the most attractive and favorable conditions for business development in the Crimea.

Undoubtedly Special Economic Zone mechanism at the new Russian region is not practiced meticulously yet, new legal amendments are planned to be adopted, but even today accession to the Crimean Special Economic Zone is a cornerstone of business success in the region.

Types of economic activities connected with mineral resources use for purposes of prospecting and production of the resources and continental shelf exploration are the exceptions for tax privileges, Special Economic Zone conditions are not extended to these spheres. Other entrepreneurs for the affiliation to the Special Economic Zone project should be registered as self-employed entrepreneur or legal entity in the city of Sevastopol or Autonomous Republic of Crimea and to have capital investment project investing at least 3 million rubles at the first 3 years of business activity. Different affiliate branches and representative offices of the companies without legal entity status have no possibility to enter the project. Special Economic Zone has a special taxation system: SEZ members pay taxes to a regional budget and are free from paying to a federal budget for the first 10 years from the moment of profit earning.

At the earliest opportunity the Government of the Russian Federation plans to invest more than 6 billion dollars in the development of the region, and it will provide the region with the whole region infrastructure development and will be a great stimulus to the different types of business activity development, from agriculture to construction, from tourist business to banking sphere.

Free market, non-competitive conditions, favorable strategic location of the peninsula, washed by two seas, sub-tropical climate, productive soil, short term outlook of transport connection with Russian inland – all this facts gives great opportunities both to the Russian entrepreneurs and to the foreign partners and investors.

Finally, let us discuss long-rumored risks, caused by non-recognition of the Crimea as a Russian region from foreign partners. For the vast majority of Russian people, including Crimean people, have such a quality as patriotism. Love of country – one of the key features of our national character. Russian people take the integration of the Crimea as a next step of the state development, and even if the whole world does not recognize legitimate in relation to international law affiliation of the Crimea, the peninsula will never be Ukrainian again. As a result, the Crimea as a Russian region will be supported by the government, it will always be provided with all necessary privileges and grants, and it will also stimulate a successful business and economic development of the region.