Special Economic Zones in Russia after the establishment of the Customs Union

Due to the establishment of the Customs Union of Russia, Belarus and Kazakhstan, the national customs legislations of the member countries are being replaced by international legislation of the Customs Union (e.g. Treaties, Decisions of Customs Union Commission).

Thus, the Treaty “On the Issues of Special Economic Zones in the Customs Territory of the Customs Union and the Customs Procedure of the Free Customs Zone” (hereinafter – the Treaty) as of 18 June 2010 is to gradually replace Russian legislation which regulates the customs benefits applied in Special Economic Zones (hereinafter – SEZ). The Treaty is supposed to extend the list of customs benefits which are granted to the residents of SEZ in Russia.

As it was previously, the Treaty stipulates that foreign goods can be imported to the territory of a SEZ and placed under customs procedure of special customs zone without paying any import customs duties and import VAT. Meanwhile, the Treaty contains a novelty according to which the products produced from the above goods on the territory of a SEZ, will be regarded as “goods of the Customs Union”, provided certain conditions (criteria of sufficient processing) are met. In other words the SEZ residents will be able to import foreign goods (i.e. goods which originate from the outside the Customs Union and have not passed customs clearance in any Customs Union member-state) to the territory of a SEZ, process them, and transport the products to the whole other territory of the Customs Union (i.e. Russia, Belarus and Kazakhstan) without import customs duties and import VAT.

It is supposed that in Russia such a possibility will be granted to the residents of all industrial SEZ (located in Lipetsk, Samara and Tatarstan) and innovation SEZ (located in Saint-Petersburg, Tomsk, Zelenograd and Dubna).

It should be noted that according to current Russian legislation (the Federal Law of 22 July 2005 № 116-FZ, which is going to be replaced by the Treaty) the exemption from import customs duty and import VAT is granted only in case of importation of foreign goods to the territory of a SEZ and usage of these goods on this territory. If the goods (or the products produced thereof) are transported from a SEZ to the other territory of Russia – import customs duty and import VAT should be paid. The only exceptions are Kaliningrad SEZ and Magadan SEZ.

In particular, the companies which were residents of Kaliningrad SEZ before 1 April 2006, are entitled to import foreign goods to the territory of this SEZ, process them, and transport the products to the whole other territory of Russia without import customs duties and import VAT. This benefit is granted provided certain criteria of sufficient processing are met. These criteria will be applied to the above companies until 1 April 2016 despite the fact that the Treaty stipulates stricter criteria.

The criteria stipulated by the Treaty should be adopted in the nearest future by the Customs Union Commission. It supposed that there will be three criteria:

  1. Ad valorem rule (the value of the used foreign goods should not exceed 50% of the total value of the products)
  2. The accomplishment of necessary processing operations
  3. The change of HS code at the level of any of the first four digits

The Treaty as well as benefits and criteria stipulated in it will become applicable not earlier than 2013.