Putin offers Russian business 'full' offshore capital amnesty

By bne IntelliNews December 4, 2014

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Russian President Vladimir Putin has announced a complete capital amnesty, allowing businesses to repatriate offshore funds without fear of the consequences. "We need to finally turn the 'offshore page' in the history of our economy and country," Putin told the federal assembly in his annual address.

"If someone legalises his funds and property in Russia, he will receive sold legal guarantees that he will not get taken before diverse organs, including law enforcement organs, and asked about their origins and means of acquisition, there won't be problems with criminal or administrative charges, or questions from tax or law enforcement organs," Putin said. He emphasised that the capital amnesty would be a "complete" and "full". 

The amnesty is a counterpart to the passing in 2014 of a bill on taxation of foreign companies controlled by Russian taxpayers and identified as being used in tax minimisation schemes. Both are seen as part of the administration's 'de-offshorisation' policy announced in 2012.

Putin already introduced a capital amnesty in 2000, when he first came to power, but only for individuals, not corporates, and with little effect. But more Russian businessmen are likely to take advantage of the opportunity now, say experts, partly because of the new law on 'foreign controlled companies', but also because of the imposition of sanctions and asset freezes on Russian business by the West in response to the Ukrainian crisis, as well as the experience of Russian deposit holders in Cyprus banks, who received a 'haircut' as part of the EU bailout of the financially distressed tax haven.

Many Russian big business owners have already started moving ownership of their businesses back to Russia, according to business daily Vedomosti, partly out of desire to show loyalty to the Kremlin, and are likely to take advantage of the new law.

The return of offshore capital could help boost growth in an economy which is predicted to enter recession next year. It could also help banks and business cope with a shortage of finance, caused by Western sanctions on Russia because of Ukraine.

Putin also announced 'tax stability' for the next four years, with no new taxes or tax hikes, "and not to return to this question", he said, ruling out any later reconsideration.

Business has latterly been especially worried that the government might raise the tax burden, given the fall in the price of oil, discussions in the summer about the introduction of a sales tax, and a draft bill in parliament allowing police to open tax cases independently of the tax service.

Putin awarded small business a two-year tax holiday on starting up, and also awarded a two-year tax holiday to new production lines "starting from zero". 

Putin called for further improvements to the business environment. These include a public register of state inspections of businesses, where it will be possible to see which state bodies inspected which business for what reason, in order to identify where a coordinated targeting of a specific business was taking place. He said this would apply not only to business but also to budget organizations and NGOs.

Putin proposed introducing 'inspection holidays' for businesses that over three years have not been admonished over shortcomings, which would then enjoy three years without any inspections, Putin said.

In order to stimulate regional authorities to improve the business climate, Putin said that he would introduce a national investment climate rating to assess how regions were adopting 'best practices' in improving the business climate, and that the rating would be referred to at meetings of the state council, where the president meets with regional heads.

Russia's investment climate got an image boost this year in the World Bank's benchmark 'Doing Business' rating in which  Russia jumped to 66th place from 97th, using a new extended methodology to capture qualitative aspects of respective jurisdictions.

Putin also announced measures to boost investment to 25% of GDP annually by 2018, through import substitution and localisation of production - including free trade zones in Crimea, following Russia's annexation of the Ukrainian peninsula - and also in the far eastern maritime hub of Vladivostok, and a system of industrial parks throughout the country.

In this context Putin mentioned the huge ongoing 30% devaluation of the ruble in 2014, as stimulating import substitution, by boosting the competitiveness of Russian firms. But he also warned that Russia's central bank would take decisive action against those speculating against the currency. In response, the ruble fell to a new historical low of just under RUB54 to the dollar in the course of the speech. 

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