On August 9, 2019, a new Priority Development Area (PDA) “Trans-Baikalia” was created in Russia, increasing the number of PDAs to 109. Locating a company in a PDA is one of the options that allow companies interested in setting up of a production plant in Russia to significantly reduce tax burden.
What is a PDA and which opportunities it has?
PDAs are special territories in Russia which initially appeared to develop and attract investments in the distant regions. Currently there are no such limitations; PDAs are also created in the central regions of Russia. The PDA’s residency status allows companies to obtain tax privileges in return for investments in a certain region. Usual PDA residents are manufacturing companies in various industries and transport and logistics companies.
The specific list of tax benefits and the conditions for receiving them may vary depending on the region. In general, the following benefits for profits tax, social contributions and VAT are provided.
Reduced tax rates are set as follows:
|Income tax||Preferential rates||Standard rates|
|Federal profit tax rate||0%||3%|
|Regional profit tax rate||5-10%||17%|
For PDA residents, a reduced rate for social contribution is set at 7.6%, while the standard rate is 30%.
A number of PDAs have a free customs zone, where foreign goods can be sold without paying customs duties and import taxes.
There is also a fast-track treatment for VAT refund which takes just 12 days instead of 3.5-4 months.
Restrictions on benefit use
To receive the tax advantages, a number of criteria must be met by a resident:
- Income from main activity must be at least 90% of all income of a resident,
- There are requirements for the amount of capital investment and the number of jobs created,
- Residents of the PDA are not allowed to carry out activities outside of the PDA.
In comparing to other preferential tax regimes, such as Special Investment Contract, PDA has both advantages and disadvantages.
How can SCHNEIDER GROUP help?
Our experts will be happy to offer you an analysis of the various preferential tax regimes applicable to your industry or in a Russian region, as well as support you in your localization process or negotiation process regarding the conclusion of the agreement with PDA’s Management company, prepare draft of such agreement.