Investment and Finance

Russia: Excellent opportunity in Kaliningrad special zones

10/14/2020 8:00:00 AM
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In this article we have described the wonders of Russia. The largest country on earth offers us absolutely everything, a great lifestyle at a low cost, beautiful landscapes, friendly locals, unique cultural events, breathtaking architecture and of course many business opportunities.

Did you know that there is an area in Russia with 0% VAT for imported goods, low taxes, low cost labor force and with excellent train connections to Europe and China? 

This is exactly the topic of this article. 

Kaliningrad special zones

Very few people know that Russia has special economic zones with incentives for local and foreign companies and today we will discuss our favorite: Kaliningrad special economic zones.

Kaliningrad is a unique place because it´s an enclave located in Europe. This means that it is officially a province of the Russian Federation but it´s actually located in Europe on the Baltic sea and near Poland. 

Thus, Kaliningrad has very good access to Europe, the ocean and also to Asia, with special transportation routes and options which we will describe in this article.

Let´s start with taxes. For those companies that settle in Kaliningrad, there are especial tax incentives and reductions in comparison with mainland Russia.

Tax reductions in Kaliningrad:

● Reduced social contribution tax from federal rate of 30.2% to 7.6%. This is the largest of Russia´s taxes and it´s paid by the employer. With Kaliningrad’s incentive the employee can make significant savings. 

● 0% profit tax first 9 years, next 6 years, 10%, after this, 20%

● 0% property tax first 6 years, next 6 years, 1.1%, after this, 2.2%

● 0% land tax for the first 5 years, after this, 1.5%

● Guarantees of the invariability of the aggregate tax burden and the land rental rate at the state level.

Free zone

The Kaliningrad free zone also offers great incentives, allowing for the exemption of fees on some products that can save you up to a 25% of your income and there are no limitations as to the volume and quantity of the products. 

With no restrictions, you can import components, products and raw materials from any part of the world with 0% VAT and 0% import duty and you can also access the following benefits:

● There will be no customs duties and import VAT on all imported equipment for the new business (plant, office, etc.). Savings on equipment will be up to 25%

● If goods are produced and consumed in the Kaliningrad region, no import VAT and import duties should be paid

● If goods are produced in the Kaliningrad region and exported abroad, no import VAT or import duties should be paid

● If goods are produced locally in the Kaliningrad region and shipped to Russia, then 85% of the customs duties on imported components of the final products will be reimbursed. VAT should also be paid, but there is a 180-days grace period of VAT payment.

Another great advantage that Kaliningrad offers to foreign companies are cheap techno parks with everything needed for the production of any product. Russia has an exceptionally talented labor force, let us remember the fact that these are the people who first sent a human being to space. 

Moreover, producing in Kaliningrad is very advantageous with the special regimes and the low cost and talented labor force. The average salary in Kaliningrad is 400 euros a month, which is cheaper than the workforce in China.

The province is in a very strategic position and has excellent logistic and transport opportunities. With the existing railroads, you can very quickly transport your production to Europe and back.

A part of the railroad belongs to the project “new silk road” which started in 2018. This route goes form a giant production center in China in the city of Chongqing, passes by the Kaliningrad province and ends up in the German city of Duisburg. From Chongqing to Kaliningrad, the transportation time is only about 8 or 9 days.

Obviously, the transportation means to and from main Russia have been set up long ago and have been working effectively for many years. 

Kaliningrad also has sea access with the only port on the Russian Baltic sea that does not freeze during the winter. 

The Kaliningrad special regimes are the best choice for those foreign companies that want to do business with Europe, Asia, and Russia, practically the biggest markets of the world. 

Requirements for registering in Kaliningrad special economic zone

Depending on the industry and area of business, Kaliningrad sets the minimum investment requirements to register in the special zones. The good news is that the investment doesn’t necessarily have to be made altogether upon registration. The investment can be made through a three-year period after the company has been registered in Kaliningrad special economic zone. 

The minimum investment requirements are: 

IT, web-media, R&D: development of software, information technology, research and development.

Minimum investment: 15,000 USD

Healthcare: health services

Minimum investment: 150,000 USD

Manufacturing, agriculture, tourism: production manufacturing, fishery fish farming, agriculture, recreational activities, tourism.

Minimum investment: 750,000 USD 

Other industries

Minimum investment: 2.3 million USD

Registration process

Requirements for legal entities:

● Organization registered in the Kaliningrad region

● Investments made in the Kaliningrad region

● Goods produced in the Kaliningrad region

● General system of taxation applied

Registration of the legal entity in three steps. To be carried out on the territory of Kaliningrad

● Submit the documents. Includes the organization into the unified register of SEZ residents.

● Application processing

● Time-limit for acquiring residential status: 30 days

If you want more information on the Kaliningrad special zones, you are welcome to contact us or visit our Russia country focus where you can find more information. 

Do you have questions?

About Kaliningrad

The area of Kaliningrad was originally formed as a result of the victory of the Soviet Union over Germany in world war II, at the time, one third of the territory of East Prussia became part of the Soviet Union and in 1946 the territory was renamed “Kaliningrad”.

This province has an area of 15,100 km2 and a population of almost 1 million people. The main cities are Sovetsk, with 40 thousand people, Chernayakhovsk, with 37 thousand people, Baltyisk, with 36 thousand people, Gusev, with 28 thousand people, and Svetlogost, with 22 thousand people. 

Kaliningrad, like all Russia, surprises us with astonishing beautiful landscapes. In Kaliningrad, we can find the Curonian Spit peninsula with dunes up to 70 meters high covered by forests.

This spot is particularly important for the region on many levels. Its unique biodiversity contributes to the wellbeing of the ecosystem and the peninsula contributes to the touristic sector of Kaliningrad. The Curonian Spit offers a combination of natural and cultural heritage which is a very typical combination in Russia.

But this is not the only attractive landscape we can find in this province. The Baltic Spit is connected to the mainland in Poland, but the Kaliningrad Bay is located off the southern coast of the Baltic Sea. The river which flows into Kaliningrad Bay is called Pregolya. One important fact, which we have mentioned before, is that the bay does not freeze during the winter, which allows for the trading to continue throughout all seasons. 

What does freeze is the Curonian lagoon, located on the southeastern coast of the Baltic Sea and it´s connected to the sea through a narrow strait. This lagoon is 7 meters deep and 93 kilometers long. 

Enquire here

7 reasons why to register in Kaliningrad special economic zone

Strategic location

Kaliningrad, due to its strategic location, has been historically connecting the east and the west. The province of Kaliningrad is the ideal place from where to operate if you want to develop your business into Europe because it´s located at the crossroads of the main European trade routes. It is close to important European capitals like Berlin, Warsaw, Riga, Copenhagen, Stockholm, Vienna, and Moscow. 

Human resources

Kaliningrad’s labor force is represented by experts in the automotive industry, microelectronics, pharmaceuticals, shipbuilding, fisheries, agriculture, and many more. Russia has a high level of talent and this can be easily confirmed if you look at Russia´s scientific and cultural history with internationally recognized names such as Yuri Gagarin, Igor Stravinsky, Fyodor Dostoyevsky, Vladimir Nabokov, Maria Sharapova, Mikhail Baryshnikov, and many others. 

In the same way, Kaliningrad has a talented workforce and at a very low cost. The average salary in Kaliningrad is even less than in China, at 400 euros a month. 

Also, Kaliningrad benefits from foreign talent as there are approximately 10 thousand immigrants coming to Kaliningrad each year, which represents 1% of the population. This province has 13 universities from which 4,000 students graduate each year. 

Excellent transportation options

● Both Russian and European railways

● Only 8 days to China by train 

● Only Russian ice-free port in the Baltic sea

● Two trans-European highways 

● 8 automobile checkpoints

● Airport: the 5th air freedom

Special economic zone 

0% income tax, property tax, and land tax. Only a 7.6% contribution to payroll.

Free zone regime

0% customs duty and import VAT for goods imported from any country

Incentives for foreign companies

For international companies 0% income tax on dividends and simplified currency control

Special gambling zone

Gambling zone on the coast for developing gambling businesses and with hotel infrastructure

Luckily, the Kaliningrad government itself is our sponsor, and their representatives are in our Mundo board of experts. Ask for a consultation today and find out the options for your particular business. Mundo is constantly offering the best options for business development at a global scale and we consider the Kaliningrad special economic zone to be a unique opportunity for international investors and businesspeople.

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