Business incentives: operating in Russia under special conditions
Overseas investors planning to establish production facilities in Russia can, depending on type of activity and capabilities, register in one of the country’s special economic zones and benefit from favourable legislation.
In this article, we explore the types of incentives available and examine how they work for Indian businesses based on real examples.
Development of special zones in Russia
Source: Ministry of Economic Development; Association of Clusters, Technoparks, and SEZs of Russia, 2024
Special economic zones (SEZs)
SEZs can only be established by the federal authorities and are governed by the federal law "On Special Economic Zones". For businesses, a key provision of this law is that SEZ residents are only allowed to have branches and representative offices within the boundaries of the zone.
Benefits for residents of special economic zones (SEZs):
Free economic zones (FEZs)
FEZs are areas where a special business regime is in place, alongside a free customs zone. Unlike SEZs, each FEZ is governed by its own specific federal law. For example, a FEZ was set up in Crimea in 2015, and in 2023 FEZs were established in the Donetsk and Luhansk People's Republics, as well as in the Zaporizhzhia and Kherson regions. FEZs can offer more flexible conditions for businesses, as the terms are set on a case-by-case basis.
Benefits for residents of free economic zones (FEZs):
Special administrative regions (SARs)
SARs are territories on Russky Island (Primorye Territory) and Oktyabrsky Island (Kaliningrad Region) where a special legal regime is in place. This regime allows overseas businesses to re-register in Russia and become international companies. In other words, in an SAR, an overseas enterprise can change its jurisdiction while maintaining its business and structure.
SARs in figures
Source: Izvestia
Benefits for residents of special administrative regions (SARs):
Territories of advanced development (TADs)
These are areas with a special legal regime and tax conditions for businesses, established in monotowns and closed cities. In 2023, work began to create international TADs where overseas companies can become residents. Specifically, the Mezhdunarodnaya TAD is being set up in Primorye Territory this year. The government plans to attract at least 20 overseas enterprises there, primarily from Asian countries and with a total investment of 30 billion roubles.
The Mezhdunarodnaya TAD will stand out from existing preferential regimes due to its distinctive features, such as being based on an international agreement and having overseas investors involved in the TAD management company’s operations.
A non-disclosure mechanism for information about business owners will be implemented to protect investors' interests. Tax preferences and infrastructure support will be similar to those in existing TADs, except for the corporate income tax—the zero rate will be extended from 5 to 10 years. The main requirements for residents will include projects with investment starting from 500 million roubles, mandatory registration in the territory, and the production of goods with high added value.
TADs in figures
Source: Ministry of Economic Development of the Russian Federation
Benefits for residents of territories of advanced development (TADs):
Mega projects for technological sovereignty
Last year, Russia identified 12 mega tech projects involving a total investment of 6 trillion roubles. Overseas companies can also receive funding to participate in these projects.
List of sectors:
In November 2024, the Government expanded the list of priority areas for projects aimed at technological sovereignty. These include:
Benefits for participants in mega projects for technological sovereignty:
Cases of Indian companies already operating in special territories
In November 2022, it was announced that FLEX FILMS RUS, a subsidiary of Uflex, one of India's largest paint and coatings manufacturers, is implementing two major investment projects in the Stupino Quadrat Special Economic Zone. The company is building a production facility to manufacture paints and adhesives for food packaging materials, as well as CPP film, which is also used for food packaging.
"To support these projects, the company has already acquired a 5.7-hectare plot within the SEZ and has started designing the future facilities. Total investment is planned at nearly 5 billion roubles, and the new production sites will create 250 jobs," said Ekaterina Zinovieva, Deputy Prime Minister and Minister of Investment, Industry, and Science of the Moscow Region.
In August 2023, the Expert Council on Industrial and Manufacturing Special Economic Zones at the Government of the Moscow Region approved a business plan from Advanced LifeScience to construct a pharmaceutical plant in the Dubna SEZ. The investor intends to invest 1.1 billion roubles in the construction and launch of the plant. The company plans to launch production at the plant in the second quarter of 2026.
The company was founded by Rajesh Sharma, an Indian entrepreneur. In 2003, he founded the manufacturing and distribution company Advanced. In 2018, supported under the Pharma 2020 state program, the Advanced group of companies opened its first plant for the production of solid dosage forms in Belgorod. In 2021, an infusion solutions production facility was launched in the Perm Territory, and last year, the group opened a plant specialising in the production of active pharmaceutical ingredients.
In spring 2024, UDM Nestors, owned by Jalan Prashant, an Indian national, announced plans to invest 946 million roubles in the construction of a milk processing plant in the new Izhevsk Special Economic Zone to be established in Udmurtia. The project is scheduled for commissioning in 2028.
Useful websites for overseas investors in Russia
Prospects for Indian businesses
Where preferential treatment is given, reciprocal obligations are imposed on the investor. For example, when registering an international holding company, the investor undertakes to invest at least 50 million roubles in Russia within a year from the registration date, says Aleksander Rakhmanov, Senior Associate at InfraLex.
"Overall, the benefits provided by Russia for overseas investors and the requirements placed on them are competitive. Based on what we’ve seen in other countries, it’s a good idea to diversify the benefits offered to overseas investors by granting them preferential access to the relevant domestic market. Furthermore, it’s only appropriate to provide additional incentives for those investors who create jobs and invest in technological development," concludes Rakhmanov.