How and why to transport the gaming business to the Kaliningrad region

The VERSUS.legal law firm continues a series of articles on jurisdictions for doing business. This time we will talk about the Kaliningrad region — a special economic zone (SEZ), where there are tax breaks for IT companies.

Kaliningrad

The material was prepared by Alina Davletshina, Senior lawyer at VERSUS.legal.

Alina Davletshina

Why the Kaliningrad Region is a good idea:

income tax – 0% in the first six years, 10% from the seventh to the twelfth year (the six-year period is counted from the moment the first profit on the project is received. If the profit does not appear within the first three years, then the countdown will start from the fourth year);
property tax – 0% in the first six years and 1.1% from the seventh to the twelfth year;
reduction of insurance premiums to 7.6%. Of these , the following are paid:

— 6% in the FIU;
— 1.5% to the Social Insurance Fund of the Russian Federation;
— 0.1% to the Federal Compulsory Health Insurance Fund.

The latter benefit is provided for newly created jobs. The SEZ regime is not designed for relocation of employees already working in the company. It is about hiring a new employee.

Now the benefit for social contributions is valid only until the end of 2025. However, in June 2021, the Government of the Russian Federation approved a bill to extend the period of application of reduced rates of insurance premiums by residents of the SEZ from the current seven to ten years and exclude the deadline for the application of benefits.

profitable program of relocation of employees to the region: you can get 522 thousand rubles for each employee;
simplified procedure for obtaining business visas for foreigners. From July 1, 2019, a visa to Russia can be obtained in 4 days by submitting an application on the website of the Ministry of Foreign Affairs.

To apply for an electronic visa, it is enough to go to the website of the Russian consulate in the host country and fill out a visa application form, and then get a visa at the Russian consulate or at the checkpoint at the entrance to the region. Now this rule does not apply due to the temporary restriction on the issuance of visas in Russia in the epidemic situation. But we hope it will resume with the opening of borders.

By the way, in 2020, the economic publication Foreign Direct investment, a division of The Financial Times, which annually makes a rating of the most promising free and special economic zones in the world, marked the Kaliningrad Region in three categories at once: logistics, new investments and relocation program.

It is important to consider:

these benefits are temporary and will cease to apply after a certain time. For example, tax benefits are granted for up to 15 years;
in some situations, it is more profitable to use federal benefits for IT business or a simplified taxation system.

Which is more profitable: federal benefits or Kaliningrad benefits?

After the “tax maneuver“, Kaliningrad’s benefits became almost comparable to federal IT benefits. Since January 1, 2021, subject to formal criteria, the total burden on insurance premiums for IT companies has decreased to 7.6%, and income tax – from 20 to 3%. But in order to receive federal benefits, it is necessary that the company has at least seven people on staff, and that at least 90% of the company’s income comes from software development.

At the same time, there are restrictions on OKVED, which companies applying for federal benefits should have:

62.01 – computer software development;
62.02 – advisory activities and work in the field of computer technology;
62.02.1 – computer system planning and design activities;
62.02.4 – activities to prepare computer systems for operation;
62.03.13 – computer system maintenance activities;
62.09 – activities related to the use of computer technology and information technology;
63.11.1 – activities related to the creation and use of databases and information resources.

There are no such restrictions in Kaliningrad, and you can also implement your activities in other classes and subclasses of OKVED. This is the main advantage of the Kaliningrad regime over the federal one.

It is advantageous for companies that do not meet these criteria to move to Kaliningrad, which means they cannot receive a federal benefit. Only 25-30% of Kaliningrad IT companies have a staff of more than seven people. Many work with freelance freelancers and have almost no employees with employment contracts.

Which is more profitable: the benefits of the Kaliningrad region or the simplified taxation system (USN)?

The Kaliningrad SEZ is more attractive for medium and large businesses than for small ones, since residents of the SEZ of the Kaliningrad region cannot apply a simplified taxation system.

Instead, companies have to pay VAT, a benefit for which is not provided in Kaliningrad, which is often unprofitable for small businesses.

At the same time, the company can always take advantage of the federal VAT benefit for software transactions if they enter it into the register of domestic software. However, Russian gaming companies are not in a hurry to do this yet (in any case, there are very few games in the registry at the moment).

Thus, the USN remains a more profitable option if the company pays VAT.

How to get a benefit of the Kaliningrad SEZ?

To start using Kaliningrad benefits, you need to get an “entrance ticket”. It will cost the company a million rubles (for reference: before the reset of the SEZ regime in 2018, the cost of such a ticket was 150 million rubles).

What does this mean?

The beneficiaries of the company must invest at least one million rubles of investments in the resident company during the first three years. To do this, at the time of applying for residency, a business plan is submitted, which indicates the amount of money invested in a new project by year.

Investments can be directed to “the implementation of design and survey work,” including the development of IT products.

A draft law has now been developed that proposes to introduce a rule that if a resident is excluded from the SEZ before the investment contract is fulfilled, he will be obliged to pay the full amount of taxes and unpaid insurance premiums.

To be included in the unified register of residents, it is necessary to send the following documents to the SEZ administration:

application addressed to the head of the SEZ administration in the Kaliningrad region on the inclusion of a legal entity in the register of residents (in free form);
notarized copies of the charter of the organization;
investment declaration completed in accordance with the form approved by the SEZ administration;
business plan of the investment project.

All forms of documents can be found here. Documents can be filled out and sent online.

How quickly can I get resident status?

within three working days, documents are reviewed for their compliance and a decision is made to accept the documents for consideration;
within 30 days from the date of the decision on acceptance, an application for inclusion in the register of SEZ residents is considered.

Registration of residency in the Kaliningrad SEZ does not take much time and does not require a huge pile of papers. But before obtaining such a status, it will take some time to register a company in the Kaliningrad region and develop a business plan.

How does the personnel relocation program work in the region?

There is a personnel relocation program in the Kaliningrad Region, which developers can use to attract specialists. Initially, it was designed for 2019-2021, but it will be extended for several more years.

According to the official website of the program, the employer will be able to receive up to 522 thousand rubles per employee.

Of this amount, up to 225 thousand rubles can be used for reimbursement:

transportation costs for moving the employee and his family members to the place of work (including the employee’s parents /parents of the employee’s spouse or spouse);
expenses related to the transportation of the employee’s personal property;
expenses for professional training of an employee (advanced training);
expenses for the housing and household arrangement of the employee;
consular fee when applying for a Schengen visa to an employee and his family members;
expenses for hiring or renting residential premises.

Additionally, you can use 297 thousand rubles per employee to reimburse the costs associated with the purchase of housing, including under a mortgage loan agreement.

The decision to receive benefits is made by a special commission formed by the Government of the Kaliningrad Region. However, in practice, many entrepreneurs complain about the “impossibility of receiving compensation” and unclear criteria for selecting participants in the program.

According to the Government of the Kaliningrad region, it conducts extensive educational work and explains the requirements with the regulations of the program. As a result, the number of companies willing to participate in it has increased in 2021.

By the end of 2020, 5.4 million rubles were allocated from the budget of the Kaliningrad Region as part of the relocation program, which went to two companies: ABB Operational Center and Dialerfair-Kaliningrad.

What other help can I get when relocating a business?

Another advantage in the Kaliningrad SEZ is the active support of the regional government. If you are currently doing business in Moscow, but want to open a new company in Kaliningrad, you should contact the Representative Office of the Government of the Kaliningrad region in Moscow.

The representative office provides a concierge service, which includes:

providing a separate manager assigned to you;
assistance in the selection of office space;
assistance in the selection of employees;
assistance in the selection of housing for relocating employees and their families;
provision of social infrastructure for relocating specialists;
assistance in the employment of family members of relocating specialists.

A special Administration of the special economic zone of the Kaliningrad Region has been created for other issues.

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It can be said that the benefits of the Kaliningrad SEZ can be very beneficial under certain conditions. The active assistance of the local government with relocation is also useful.

Due to federal benefits for developers, Kaliningrad has lost most of its advantages. Nevertheless, IT companies choose this region because of the flexibility of doing business and the possibility of using 62 and 63 OKVEDAM with all subclasses.

Now the regional government is preparing new proposals to strengthen benefits. We will wait for developments in this matter.