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Russia Discusses VC Incentives

Friday, March 5, 2010

Russia's ministry of economic development has countered last month's ministry of finance proposals to stimulate innovation and modernization of the economy with a much more adventurous tax incentive package for venture capital, including capital gains tax holidays.

Russian Vice-Premier and Minister of Finance, Alexei Kudrin had said that modernization required resources and, at its most ambitious, the Russian government could build up tax incentives for innovation of up to RUB150bn (USD5bn) in two to three years which included lower social security contributions for employees, and exemptions from property tax for certain companies.

The ministry of economic development has sent its proposals to Kudrin. These would mean a separate tax regime for "innovation centers", which included a zero corporate income tax rate and exemption from land and property taxes; value-added tax payments could also be zero rated and social security deductions could be set at a flat rate of RUB4,800 (USD160) per month per employee.

Such tax holidays could be applicable for five years for newly established companies and those established no more than two or three years before the introduction of the regime.

Another new proposal from the ministry was the waiving of capital gains tax on the sale of shares to stimulate long-term venture capital funding, provided that the shares are held for more than five years, and the shareholding is more than 10%.

The beneficiaries would require accreditation as 'world class innovators' from reputable academic institutions and/or self-regulating venture capital organizations such as Rosnano and the Russia Venture Company.

These proposals were being considered "without enthusiasm" by the ministry of finance according to Kommersant, although a meeting with Kudrin had been scheduled to discuss them.

The director of the Tax Policy Department, Ministry of Finance, Ilia Trunin, told Kommersant that preferential treatment could be given to the right candidates, but the ministry of finance wanted to exercise its own discretion rather than leave it to Rosnano and the others.

Trunin added that his ministry had never been a supporter of releasing businesses from capital gains tax obligations even in respect of medical and educational institutions, where this had already been granted.