Russia shaped its innovation incentive into legal form by introducing the Law on the Innovation Center Skolkovo (FZ # 244 dated 28.09.2010) (the Law) and the Law on the Amendments in connection with the Law on the Innovation Center Skolkovo (FZ № 243 dated 28.09.2010) (the Law on amendments). The Skolkovo project is of particular interest for investors, as innovations play an important role in the successful business. What are the most interesting provision to be examined in the Laws? Primarily:

-                Types of activities that can be exercised by the projects participants;

-                Requirements set forth to project participants;

-                Managing Company's status;

-                Labor activity of foreign citizens;

-                Construction particularities;

-                Customs, tax and accounting issues.

 

What types of activities can be exercised by project participants?

 

The law provides that Skolkovo participants can exercise only research activities. Meanwhile, research activity includes not only research and development but also results commercialization. It should be taken into consideration that research activity can be exercised in the following directions:

-                energy efficiency and energy saving including development of innovative energy technologies;

-                nuclear technologies;

-                space technologies, primarily in the sphere of telecommunications and navigation systems (including establishment of the corresponding terrastrial infrastructure;

-                medical technologies in the sphere of equipment and drugs development

-                strategic computer development and software

 

The control over the research activity will be exercised by a special Managing Company, which will be created with the participation of the Russian government.

 

What requirements are set forth for project participants?

 

Under the Law, a project participant is a legal entity established in Russia exclusively for the purpose of exercising research activity described above. Also it is necessary to obtain a project participant status, that is to say, to be included in the special register that is kept by the Managing Company. Four conditions should be satisfied:

-              a legal entity is establshed in conformity with the Russian legislation;

-              the permanent executive body and other bodies and persons  entitled to act without a power of attorney on behalf of the entity, are constantly located on the territory of the Center;

-              the constituent documents of such a legal entity provide that only research activity can be exercised;

-              a legal entity undertakes an obligation to exercise only research activity in accordance with the Law and Project Rules, that are to be approved by the Managing Company.

 

Nevertheless, a foreign investor can use an "entity participating in the project implementation" concept, that is to say, legal entities (not only Russian) can participate in project implementation on the basis under agreements concluded with the Managing Companies or a project participant. But it should be repeated that in order to obtain the project participant status itself, a foreign investor should establish its Russian subsidiary company.

 

 

 

Managing Company: what does it mean?

 

Managing Company is a legal entity which is granted vast powers by the Russian Government. Each project participant or other entities which are connected with the Center, will have to cooperate with it. Among its functions are the following:

-              general control over and coordination of activities;

-              maintenance of infrastructure on the Center territory;

-              arrangement and assistance;

-              other functions defined by the Law;

 

Also, it is the Managing Company that will approve the Project Rules which will clarify the specific details of the Project activities.

 

What is the procedure for foreigners to work in Skolkovo?

 

Russia continues to ease the process of engaging foreign labor force. Let us consider the process in brief.

 

First of all, two main exceptions are set forth in this respect for the Project:

-there is no necessity to obtain permits in state bodies - invitations and permits are obtained through the Managing Company or its affiliated branches;

-there is no need to receive special quotas for hiring foreign employees as opposed to the standard procedure.

 

Secondly, the permits term should not exceed the term of the labor or civil works agreement under which a foreigner will work in the Center. The maximum term is three years since the date of arrival in Russia, but that term can be prolonged every three years.

 

Construction activities

 

Due to the fact that Skolkovo is inseparably concerned with active construction activities with regards to infrastructure objects, it is necessary to have a look at the particularities of construction on the Skolkovo territory. The preparation and approval of the General Plan, rules of development and land usage are within the competence of the Managing Company. There is no state examination of the project documentation of the capital construction objects, construction and capital repairs of which are to be undertaken in Skolkovo, as well as of the engineering results. Instead this examination is to be conducted by the Managing Company. Also the forms of permission and commissioning certificates will be approved by the Managing Company

 

What about tax and customs privileges? What will be the impact on the accounting issues?

 

The Law provides for reimbursement of the paid customs duties by providing subsidies under the following conditions :

-                duties were paid for the goods, imported

§  for the purposes of construction of the Skolkovo objects as well as for furnishing them with equipment;

§  for the purposes of exercising research activity;

-                the Managing Company submitted to the competent authority all the necessary information in the written form ( goods nomenclature, their quantity, cost and entities which imported them).

 

As an example one another favorable provisions, we can cite the tax-exemption for the companies with project-participant status. Under article 145.1 of the Russian Tax Code there is no obligation to pay taxes within ten-year period since acquiring the project-participant status. But there is an obligation for a project participant to submit the following document to the tax body:

-                a written notification;

-                documents confirming the exemption right (the extract from the accounting books).

 

The are two conditions under which the exemption can expire:

-                the annual turnover exceeds 1 billion roubles;

-                the loss of the project-participant status.

 

In cases where the annual income of project participants does not exceed 1 billion roubles, there is no reporting obligations.

 

Conclusions

 

For sure, the institution of the special innovation legislation is favorable in terms of research activity as well as commercialization of its results. The high-tech market participant should pay attention to the Project Rules (to be soon approved by the Managing Company).  In fact, Skolkovo is planned to be "a state within a state". Nevertheless, the intentions of the Government themselves are not enough for innovation, it is necessary to attract hi-tech companies to invest and to participate in the Project. That is why the Law provided certain privileges for those who are willing to be an investor in the Russian innovation sphere. In the coming years we’ll be able to judge on the efficacy of the proposed mechanisms.