Why invest in Russia now
”I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful’ – Warren Buffet
Since the collapse of the USSR, Russia has been a country full of opportunities for the intrepid entrepreneur. Every year, these opportunities continue to grow. The Russian government is constantly bringing in new initiatives to encourage foreign investors deterred by international sanctions. This means that it’s actually easier to set up a successful business in Russia now than it was prior to 2014. Within the space of 7 years Russia has jumped from 120th to 31st place in the World Bank’s annual ranking of countries easiest to do business in, ranking ahead of many highly developed nations such as France, Japan and Switzerland.
We’re going to walk you through some of the top incentives put in place by the Russian government that make Russia the perfect destination for your next business venture.
Investment opportunities across all of Russia
Most people tend to think only of Moscow and St Petersburg when considering business locations in Russia. However, there are plenty of other resource rich regions in Russia that the Russian government is actively marketing to foreign investors. How is it doing this? Through the implementation of a series of new jurisdictions. We’ll give you a quick rundown of the major ones.
Special Economic Zones (SEZs)
These are aimed at attracting investments into particular sectors of the local economy (Manufacturing, Technology & Innovation, Tourism & Recreation, and Port & Logistic). How can you benefit? In SEZs, you have a customs-free zone, accelerated depreciation, reduced social contributions, as well as a lower tax burden.
Advanced Development Territories (ADTs)
These target investment into less favoured areas of Russia, namely in the Far East. Although not commonly thought of by foreign investors, these areas are ripe for the picking, as they are rich in natural resources. Thanks to ADTs, areas of the Russian Far East (the Free Port of Vladivostok) now provide special customs arrangements. They also offer an investment and taxation framework that includes a reduced profit tax, a 5 year property tax exemption and reduced social insurance contributions.
A booming digital economy
The Russian tech industry is currently benefiting from a high amount of state attention. The Kremlin aims to rebrand Russia as a digital economy, by improving both its global competitiveness and its national security. Not only is the tech industry booming right now, but the future looks bright too, since Russia is the fourth largest producer of STEM (science, technology, engineering and mathematics) graduates in the world as of 2017.
Over the next five years (2019-2024), $26.2 billion will be invested into the Digital Economy Program. Russia is also aiming to develop its own ‘Silicon Valley,’ otherwise known as the ‘Skolkovo Innovation Center’. This will help Russia to catch up with other world leaders in technology such as the US and China. Moreover, there are many funding opportunities available for tech startups and businesses. If you deal in this area, it’s worth considering Russia as a location to relocate to!
A friendly environment for foreign businesses
Russia is generally a very welcoming place when it comes to foreign business. The ‘Foreign Investments Law’ guarantees that foreign companies are treated no less favorably than domestic ones, and guarantees the right to draw revenue and profits from your investments in Russia. In addition, it allows businesses to invest in almost every sphere of the economy, from insurance companies to mass-media enterprises. However, there are some restrictions in place when investing in strategically important sectors, such as the nuclear and defence industries.
New opportunities through sanctions
Although the phrase ‘economic sanctions’ may sound intimidating, there are many ways to take advantage of the sanctions in Russia if you’re a foreign investor. In fact, the Russian government often actively encourages this.
The Russian government wants to grow the industry of import substitution and encourage local industrial production. It has therefore implemented several incentives, such as Regional Investment Projects. As a participant, you promise to invest in the production of goods in any region of Russia. Consequently, you receive a number of tax benefits. The programme presents a lucrative opportunity for foreign business people looking to fill a gap in the market left by declining imports.
For example, following the imposition of sanctions between Russia and certain Western countries, Russia experienced a shortage of high quality cheese. Prior to 2014, this was imported from EU states such as France and Switzerland. However, the combination of a gap in the market for quality cheese and government incentive schemes for import substitution resulted in a massive boom in the domestic cheese industry. In this way, many canny entrepreneurs have been able to build successful businesses off the back of the sanctions war!
Despite sanctions, Russia is still a great place for foreign companies and entrepreneurs to invest. At Wagner & Experts, we can help you navigate the Russian economy and business environment. We offer a full range of consulting, tax advice, accounting and legal services. Leave us your number and we will help you grow your business in Russia.