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Vladivostok Free Port: Successes and Challenges. Putting Our Heads Together

September 06, 15:38 UTC+3
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Key conclusions

Free Port regime benefits investors

“270 residents declared their intentions to invest into Vladivostok Free Port. Potential investments will amount to 375 bln rubles, leading to the creation of 29 thousand jobs. There is an unprecedented intention to achieve the highest comfort from the standpoint of administration of affairs. Tax benefits are sound and no taxes have to be paid in up to 8 years,” said Oleg Goshchansky, Chairman, Managing Partner, KPMG in Russia and the CIS.

“The free port regime and preferences currently available mean a reduced burden on business on the one hand, and solution of social tasks through the business on the other. The free port regime in the Khabarovsk Territory during the first 10 years provides approximately 70% savings on tax payments. An investment project payback will be approximately 20% quicker in time. Every ruble will give extra 50 kopecks to the gross regional product,” noted Yury Chayka, First Deputy Chair of the Government of Khabarovsk Territory for Investment and Priority Projects.

“We managed to save about 10 mln rubles in payroll over the year owing to port preferences. We largely have high-skilled specialists; we train them or they come from overseas,” said Dmitry Voloshenko, Chairman of the Board, Composite Shipbuilding.

Challenges

High administrative burden

“A restriction of inspections is important for us because too much labor resources are spent on paperwork and preparing for inspections,” said Alexander Shumatov, General Director, Children’s Health Centre.

Need to revise principles of accelerated VAT refund

“The corporation has no separate fund to provide support and issue guarantees; respective documentation is under development now,” said Evgeniy Panin, Director General, Vostok LPG.

Low demand for free trade zone procedure

“The customs portion of the law is not used to the full extent and its performance is extremely weak. There have been just two residents to date who apply the free trade zone procedure,” said Sergey Fedorov, First Deputy Head, Far Eastern Customs Directorate, Federal Customs Service.

No benefits for companies already operating in the Far East

“The main challenge is to make more detailed decisions for the business and investors on changes in the Internal Revenue Code because the tax benefit is provided for new companies only for the time being,” noted Irina Olkhovskaya, First Deputy General Director - Commercial Director, "Port Management Company" - management company of "Vostochny Port."

Underdeveloped ground customs infrastructure

“Challenges are in place on the land border. You know its status and its infrastructure has not been developed, to put it mildly. Furthermore, our Chinese colleagues are not ready to change to 24-hour operation conditions,” Sergey Fedorov said.

Solutions

Opportunity to use international standards on port territory for staff recruitment

“We have come to face a shortage of human resources and labor efficiency during operations over the course of a year. <…> An opportunity of using international rules on expansion of medium-grade medical personnel will help solve the problem with HR shortage,” Alexander Shumatov noted.

Simplifying red tape procedures, introducing electronic document management

“If the parties agree, it will be clear who will use information and we will agree upon this formula with you. We are ready to furnish information to counterparties requesting it in addition, so that to relieve you from the administrative burden,” said Denis Tikhonov, General Director, Corporation for Far East Development.

“The Administration of the Primorsky Region has three departments covering us as a fishing port. Each department develops its own reporting pattern. We are trying to fill in all of them but I believe this is a waste of working time for the administration and for us. I suggest unifying reports. This will be convenient and clear for everyone,” said Alexey Golovko, General Director, Far Eastern Transport Group.

“An opportunity for trilateral electronic documents management among a corporation, a resident and the Federal Tax Service will help settle issues as quickly as possible, within 5 days,” noted Dmitry Makarenko, General Director, Artayar.

“An order of the Finance Ministry No. 111 came into force on September 2. It made many changes to requirements for infrastructure development. Many indulgences have already been made there,” Sergey Fedorov added.

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