MOSCOW INVESTMENT DIGEST October 2019
The Moscow Department for Investment and Industrial Policy, in cooperation with the Moscow City Investment Agency, presents a new issue of the Moscow Investment Digest.
Russia is Ahead of France, Japan and Switzerland in Doing Business Ranking
“Russia has reached a record high position in the Doing Business 2020 ranking. At the same time, we were ahead of countries such as Japan (29), France (32) and Switzerland (36). For comparison: in 2010, our country was 123rd out of 183s”, said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations. According to him, the growth in the ranking became possible due to accelerating the connection of enterprises to the power supply system, streamlining the procedure for obtaining building permits and the high speed of registration of property rights. “I note that in preparing the report, World Bank experts analyze the business climate in only two cities of the country – Moscow and St. Petersburg. The place of Russia in the ranking depends on the capital up to 70 %”, emphasized the Deputy Mayor.
In order to reduce the costs of doing business and remove administrative barriers, the Moscow Government is implementing a number of measures: consistent work is being carried out aimed at streamlining procedures in the urban area, the development of online services and electronic services in construction. In 2018, the conversion of all construction services and network company services to electronic form was completed. Thus, a closed loop of electronic administrative procedures has been created to ensure the construction process from start to finish. The engineering surveys by private companies have been simplified thanks to the creation in Moscow of information resources containing archival data on this type of work. To date, maximum transparency and accessibility of construction services for developers has been ensured.
Moscow Will Choose Investor for Medical Product Plant
Moscow has announced a tender to sign an offset contract in order to create the first Russian large plant of wide range of medical products for ostomy patients. The starting (maximum) contract price is RUB 8.6 bn.
“The tender will identify the investor for this new modern manufacture of medical products by the end of the year, the investor will sign a 10-year-contract. At least RUB 1 bn will be invested in the Moscow project over three years. The investment stage will be held in two stages, taking into account the varying degrees of complexity of the manufacturing processes. The manufactured medical devices will be supplied for urban needs for eight years”, said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations. Project implementation under the contract will be carried out at the expense of own or borrowed funds of the supplier-investor.
“To date, Moscow has already concluded two offsets in pharmaceuticals – with Biocad and R-Pharm. The contracts provide for the localization of the production and subsequent supply of drugs in the city: oncology, cardiology, endocrinology, immunomodulators. The total investment on two offsets is RUR 8.8 bn, the volume of supply is RUB 32.4 bn”, added Alexander Prokhorov, Head of the Moscow Department of Investment and Industrial Policy.
Offset contracts signed earlier have shown efficiency in terms of saving budget funds: their initial (maximum) prices as a result of competitive procedures have been reduced by a total of 36%. Currently, projects are being implemented on the territory of the special economic zone in Zelenograd. Both the two concluded offsets in pharmaceuticals, and the planned project for the production of medical devices provide for import substitution.
“An offset contract is a purchase of goods for state needs with counter investment obligations to localize their production. Its main goal is to stimulate the investment of private funds in the creation of new enterprises or the modernization of existing facilities in Moscow. The offset is concluded for a period of up to 10 years, the minimum investment is RUB 1 bn, the delivered goods must be of Russian origin”, explained Leonid Kostroma, Director of the Moscow City Investment Agency.
Targeted Investment Program Prioritized Transport Infrastructure Development
The 2020-2022 Targeted Investment Program (TIP) has been approved. The TIP keeps the 2011 priorities of the Moscow investment program. Ca. 800 city facilities are planned to be commissioned within the next three years (including houses under the renovation program).
TIP key priority is the development of Moscow's transport infrastructure. In 2020–2022, it is planned to commission 67.7 km of lines, 27 stations and 2 electric depots. The program provides for the construction of additional main tracks, as well as the reconstruction and construction of new railway stations for the phased commissioning of Moscow central diameters (a total of 375 km of tracks, 180 stations and about 100 transfers). In 2020–2022, it is planned to build more than 300 km of roads, more than 60 pedestrian crossings and about 100 artificial structures (bridges, flyovers, overpasses).
TIP also provides for the construction of 55 transport hubs, which will allow passengers to transfer comfortably from one type of transport to another. As part of the hubs, it is planned to open 5 bus stations, 14 buildings of terminal stations for ground public transport, 35 underground and seven elevated pedestrian crossings, as well as to equip about 15 thousand parking spaces.
TIP financing in 2020–2022 will amount to more than RUB 2 tn, of which RUB 663.9 bn will fall in 2020, RUR 681.3 bn in 2021 and RUB 684.3 bn in 2022.
Business Has Invested More than RUB 50 bn in Production in Technopolis Moscow SEZ
“About 130 companies are located and operate on the territory of the special economic zone, some of which receive tax benefits and have the opportunity to reduce their tax costs to 47%. At the end of the year, the investment level of companies will reach RUR 51 bn, and their annual revenue will be about RUB 40 bn”, said Anna Gorbatova, Deputy General Director for Investor Relations of the Technopolis Moscow Special Economic Zone.
Currently, 9,000 highly qualified specialists work in the territory of Technopolis Moscow, and the residents are high-tech companies involved in IT, microelectronics, pharmaceutical production, and waste recycling. Among others, companies from Switzerland, France, Holland, America, and countries of Eastern Europe work in the SEZ.
Investors invested RUB 1 tn in the development of New Moscow
About RUB 1 tn was invested by investors in the construction of housing, social and transport facilities in New Moscow for 7 years, since 2012. “Significant expenses were spent on the creation of road transport infrastructure. After 7 years, the average travel time by car through the territory of New Moscow decreased by more than 16%, and the load factor of roads decreased by almost 10%. And these indicators, taking into account our plans, will grow”, said Vladimir Zhidkin, Head of the Moscow Department for the Development of New Territories.
According to him, by 2024 it is planned to build and reconstruct more than 500 km of roads, and by 2035 the length of the street road network of the Troitsky and Novomoskovsky districts will exceed two thousand kilometers.
The effect of non-state investments in new territories is also felt in the field of housing construction, social and commercial facilities. For more than seven years, investors in the Troitsky and Novomoskovsky districts residential real estate market have commissioned 9.5 thousand apartments, built and commissioned 57 social institutions, and created more than 120 thousand jobs.
According to forecasts, by 2020, state and business investments in New Moscow will amount to RUB 2.5 tn, by 2030 – RUB 5.9 tn, and by 2035 – RUB 7 tn.
Almost 60% of Russian self-employed are registered in Moscow
“In Moscow, for the nine months of 2019, 131 thousand people registered as self-employed. The total income of the Moscow self-employed exceeded RUR 15.8 bn”, said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
From January to August 2019, the budget of Moscow received RUB 235.5 m of taxes from self-employed citizens. Most often, people who pay professional income tax are engaged in passenger transportation, tutoring, advertising, give advice or rent apartments.
“Every month, the number of self-employed in Moscow increases by 15–20 thousand. Many citizens who previously worked informally appreciated the convenience of the new tax regime and now have the opportunity to work comfortably and receive transparent income. The self-employed regime received support from citizens: in Moscow their number doubled the plan for the capital, set by the national project “Small and Medium Enterprises”, said Denis Tikhonov, Head of the Moscow Department of Economic Policy and Development.
Almost 45,000 Individual Entrepreneurs Registered in Moscow for 7 Months
By August 1, the total number of working individual entrepreneurs (entrepreneurs) in Moscow reached 343 thousand, which is 12.2% more than a year ago. For 7 months, 44,700 new entrepreneurs were registered in the capital, which is 9.3% more than the same period in 2018.
Individual entrepreneurs occupy a large share of the Moscow market of trade, public catering, services, transportation and other industries. A system of preferences has been created for individual entrepreneurs: direct financial support, benefits for renting city property, transparent access to public procurement and information support. First time registered businessmen can expect a two-year tax break.
Moscow Investors Will Get New Tax Preference
“Since 2023, due to changes in federal law, the preferential income tax rates established by the regions will expire. Therefore, the Moscow Government has worked out the introduction of an alternative support option - an investment tax deduction for income tax”, explained Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
At the moment, the bill regulating the new benefit is under consideration in the Moscow City Duma. If adopted, the Investment Tax Preference will come into force on January 1, 2020. The tax preference will be granted to the companies in Moscow and with the Moscow investor status. To determine the maximum investment tax deduction, the profit tax rate to be credited to the city budget is set at 12.5% for organizations that have received the status of a Moscow investor of the first category and 8% for organizations that have received the status of a Moscow investor of the second category. The standard income tax rate credited to the capital budget is 17%.
The requirements for the “Moscow Investor” status and the procedure for obtaining it will be determined by the City Government. Actively investing industrial enterprises will provide support using the new mechanism.
The preference will significantly decrease the profit tax amount to be paid to the local budget for max. 7 years. The federal tax amount can be also reduced down to zero. Due to the amount of tax that is credited to the budget of the subject, in the current period, you can write off up to 90% of the costs that form and change the initial cost of the fixed asset.
Moscow Will Keep Property Tax Benefits
The Moscow Government introduced a bill to the Moscow State Duma on a 5-year extension of tax incentives for property for buildings not used for trade and offices, and certified hotels transferred to pay cadastral taxes.
“The benefits will expire on January 1, 2020, however, the need to reduce the tax burden to the level of similar objects taxed on property at book value remains. In this regard, the Moscow Government proposed amendments to the Moscow tax legislation aimed at extending these benefits until 2025”, explained Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
In particular, 499 out of 615 potential recipients from non-trade organizations, who saved a total of RUB 2.9 bn in 2018 due to the privilege, use the property tax benefit. These are warehouses, garages, parking lots, car services, production shops that give away part of their premises for offices or cafes.
It is also proposed to maintain the tax credit for hotels by exempting from the property tax double the minimum room area. It covers 120 hotels that are taxed at the cadastral value (7% of all Moscow hotels). The discount is applied to 74 hotels (60%), last year it amounted to RUB 600 m. The basis for the provision of benefits is the availability of a certificate on assigning a hotel category.
Ceramic Producer will Expand Production with the Support of the Moscow Government
The Moscow Fund for the Support of Industry and Entrepreneurship issued a soft loan to the metropolitan scientific and technical center “Bakor”. The company, which produces specialized ceramics, ceramic membranes and melting crucibles (including for aircraft manufacturing), will receive RUB 100 m for 3.5 years at a rate of 2% per annum as part of the Industry product.
With this money, Bakor will purchase new equipment, expand production and expand its product line. “It is planned that after the purchase and launch of new equipment, the revenue of “Bakor” research and development center will grow by 42% (during the project implementation period). Accordingly, the amount of taxes that the company pays to the budget will increase. In addition, this investment project will attract an additional RUB 84.4 m of private investment”, said Alexander Prokhorov, Head of the Moscow Department of Investment and Industrial Policy.
70 Land Plots for Constriction Will Be Offered Investors Still in 2019
Until the end of 2019, 70 more land plots with a total area of 13 ha will be listed for auction which are located mainly in the Eastern, Southeast, Northern, Troitsky and Novomoskovsky administrative districts, will be additionally put up for tenancy.
According to the results of auctions held over 9 months of this year, the total cost of the annual lease of land amounted to RUB 424.9 m. This amount is 3 times higher than the same period last year. The growth is due not only to the interest of investors, but also to an increase in the number of sites themselves put up for auction, as well as a change in the approach to determining the initial price of auction lands.
Investors are now offered 15 land plots ranging from 0.05 to 3.5 ha to construct sport and production facilities, business centers, vehicle service shops, garages, and individual housings.
SME Acquired Premises in Moscow for RUB 8.9 bn
As part of the support provided to small businesses in Moscow, SME representatives can not only benefit from preferential rental programs for urban premises, but also buy out real estate rented from the city without bidding. For the three quarters of 2019, 438 representatives of small and medium-sized businesses acquired more than 90 thousand square meters of rented non-residential premises from the city, using the preemptive right to purchase. The total amount of sales contracts amounted to RUB 8.9 bn. Most of the premises transferred to the business are located in the Central, Northeast and Southern Administrative Districts.
“In order to buy out properties leased from the city and become their full owner, representatives of SMEs submit an application to the Moscow Property Department for the public service “Remunerated alienation of real estate leased by small and medium-sized enterprises from state property of Moscow”. Contracts with entrepreneurs are concluded without bidding. In addition, there is the possibility of installment payment for 5 years. To date, 169 sales contracts are in the final stages of execution”, commented Maxim Gaman, Head of the Moscow Property Department.
The Winners of Electronic Auctions Bought 50,000 m2 of Non-Residential Premises from the City
About 200 non-residential premises of commercial real estate with a total area of about 50 thousand "squares" were sold for 9 months of this year through city auctions to increase prices. “We are seeing an increase in competition at these auctions – from an average of 5 participants per lot last year to 6 this year. The trend shows that the urban bidding procedure continues to enjoy the confidence of buyers, since such a transaction is absolutely transparent and accessible to everyone”, said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Most of the facilities since the beginning of this year have been implemented in the Central, Southeast, Southwest and Northeast administrative districts. The highest competition at auctions to increase prices for 9 months of 2019 was observed in the west of the capital.
“On average, 12 participants claimed one lot in the western part of the capital. At the same time, demand in other districts is evenly distributed – from 4 to 6 participants per lot. And even despite the greater number of applicants who are collecting city auctions, it is here that the winners manage to purchase premises at a competitive price – from RUB 22 thousand per m2”, said Gennady Degtev, Head of the Moscow Department of Competition Policy.
Private Investor will be able to Open a Kindergarten “for RUB 1”
“A two-story non-residential building with a total area of 752.5 m2 was put up for city auction. The initial cost of annual rent is RUB 9.7 m. The auction winner will be able to open a kindergarten or school in it, concluding a lease agreement with the city for 49 years. In addition, the investor has the opportunity to switch to the “ruble” rental rate. For this, it is necessary to implement the requirements of the Department of Education by fulfilling the relevant standards for the provision of educational services”, Maxim Gaman, Head of the Moscow Property Department.
The building is located inside a residential quarter 450 meters from the Trubnaya metro station and has a fenced area. Currently, an application campaign has been opened for the facility, which will last until November 8, 2019. Bidding is scheduled for November 14, 2019.
Investor will Build a Shopping and Entertainment Complex in the South-East of Moscow
In December, the city will put up for auction a land area of 1.6 ha for the construction of a shopping and entertainment complex in Nekrasovka. Its total area will be 36.5 thousand m2. The construction of the facility should be carried out by the investor within 7 years: it is for this period that a lease agreement will be concluded with the winner of the city auction.
The initial annual rent for a land plot is RUB 7.1 m.
Detailed information on objects put up for auction, as well as on the procedure and conditions for participation in tenders, is available on the Moscow Investment Portal.
Business seminar “Direct investment: opportunities and support measures provided by the Moscow Government”