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Focus on South Korea (Issue 5, 2017)

TAX BENEFITS PERIOD EXPANDED FOR LARGE INVESTMENT PROJECTS

On November 28, 2017, President Vladimir Putin signed the Federal Law On Amendments to Article 2844 of Part Two of the Tax Code of the Russian Federation," specifying the period for residents of the priority development territories and the Free Port of Vladivostok to apply for preferential income tax rates.

The following chart summarizes the extension of the benefits:

minimum capital investments

period from the inclusion in the residents register during which there are no profits

the preferential tax rate on corporate profits begins in the:

500 million rubles

5 tax periods

6th consecutive tax period

1 billion rubles

6 tax periods

7th consecutive tax period

100 billion rubles

9 tax periods

10th consecutive tax period

Previously, the zero rate for corporate profits tax applied to all residents of the priority development territories and the Free Port of Vladivostok for only the first five years from the date of registration. The new legislation will make the tax preferences for large investment projects more effective, because it allows investors in large projects to take advantage of the zero tax rate, even if they do not realize any profits during the initial five-year benefit period prescribed by the previous provisions of the Tax Code.

HYUNDAI CORPORATION TO LAUNCH PROJECTS IN THE RUSSIAN FAR EAST

The Head of Hyundai Corporation, Lee Jae Hwan, announced his company’s intention to participate in the of several high-tech projects in the Russian Far East.

Hyundai Corporation signed an agreement with the Russian partner LedStroy LLC and Korean partner Kigrid to construct facilities for the production of LED lighting equipment in the Far East region. LedStroy operates in the TAD "Nadezhdinskaya,” which is a territory that is a significant construction platform for the region. Currently, Hyundai Corporation is analyzing the Russian market for lighting devices in order to determine the most popular type of products for production in the future.

Hyundai Corporation also signed a cooperation agreement with Hevel LLC to build modern hybrid solar-diesel power stations in the Far East, analyzing the unique features of Yakutia, and searching for integrated solutions based on adaptive technologies. Mr. Lee notes that his company would like to apply the results of this project to Kamchatka, Chukotka, and Sakhalin.

He further stated, that because of the Russian government's growing economic development with the government of the Republic of Korea, Hyundai intends to continue building business infrastructure in the Russian Far East and to increase the number of projects implemented there.

INVESTORS OF THE FAR EASTERN REGION TO PROVIDE ADDITIONAL BENEFITS FOR PREMIUM PAYMENTS

On September 7, 2017, at the plenary meeting of the Third World Economic Forum, President Putin announced the adoption of a law that extends insurance premiums for residents of the priority development territories (TAD) and the Free Port of Vladivostok. The law extends the privilege on premium payments from three years from the establishment of the TAD or the Free Port of Vladivostok to ten years. Thus, a resident registered in a TAD in 2016 will enjoy the premium privilege until 2026.

The President also noted another legislative change that will allow foreign citizens who invest 10 million rubles or more in their projects in the Far East to obtain Russian citizenship in a simplified manner.

RESULTS OF THE THIRD EASTERN ECONOMIC FORUM - 2017

The Third Eastern Economic Forum (EEF-2017) was held in Vladivostok on September 6-7, 2017. The results of the event, attended by about 6,000 people from more than 60 countries, exceeded all expectations. During the Forum, 217 international agreements were signed, worth up to 2.496 billion rubles. These agreements already are being implemented, and are expected to create about 68,000 new jobs and 35 enterprises in the Russian Far East.

These agreements include:

  • a Memorandum of Understanding between Rosсongress and the Korean Trade and Investment Promotion Agency (KOTRA);
  • a Memorandum of Cooperation between the Autonomous Non-Profit Organization the Far East Investment and Export Agency and KOTRA;
  • a Memorandum of Understanding between the Far East Development Fund andthe Baikal region and the Export-Import Bank of Korea (KEXIM) to implement the Russian-Korean Financial Cooperation Initiative for the Development of the Far East;
  • a Memorandum of Understanding between the Agency for Strategic Initiatives and KOTRA; and
  • a Memorandum of Understanding and Cooperation among the Far East Investment and Export Agency, Korea Trading and Industries, the Busan ​​Port Authority, UNICO Logistics, and Korean Seafood, to create a fish processing and logistics complex in the Russian Far East.

Under one of the Memoranda of Cooperation, KEXIM and the Far East Development Fund commit to invest about $2 billion in projects implemented in the Russian Far East in the next 3 years. Their agreement also provides for various types of financial participation in projects, such as: direct investment in the authorized capital of organizations; and guarantees and loans to Korean companies that invest in projects in the Far East. The Far East Development Fund will structure the KEXIM’s projects and attract Russian companies to participate in them.

RUSSIAN AND KOREAN PRESIDENTS DISCUSS BILATERAL COOPERATION AND FREE TRADE WITH THE EEU

One of the principal events of EEF-2017 was President Vladimir Putin’s meeting on September 6, 2017, with the President of the Republic of Korea, Moon Jae-in.

The two heads of state discussed the priority measures for the development of trade and economic relations. President Moon highlighted that the Republic of Korea is Russia's best partner in the development of the Russian Far East and indicated that one of the goals of his presidency is to move Russian-Korean relations to a qualitatively new level, promoting a new economic policy. The parties agreed to intensify joint investment and financial platforms with a capital of $1 billion, and to create a list of the most promising projects.

Later, on September 7, 2017, the two leaders met at the plenary session "Far East: creating a new reality," during which President Moon proposed "to establish nine bridges of cooperation,” and to accelerate the progress of negotiations for a free trade agreement between South Korea and the Eurasian Economic Union. Within the framework of the Russian-Korean business dialogue, the parties agreed to establish a working group for this purpose.

Concluding his speech, President Moon announced that he had agreed with President Putin to establish a forum on interregional cooperation, which would be an excellent platform for practical cooperation and advancing human capital among the governments and businesses of the two countries.

VLADIVOSTOK STARTS THE ACTION CENTER FOR KOREAN INVESTORS

Within the framework of EEF-2017, the Autonomous Nonprofit Organization the Far East Investment and Export Agency and KOTRA signed a Memorandum of Cooperation to establish an Action Center for Korean investors, located at the KOTRA office in Vladivostok.

The opening ceremony was held on November 24, 2017, attended by the Far East Investment and Export Agency General Director Leonid Petukhov, KOTRA President Kim Jae-hong, and the General Director of KOTRA in Vladivostok, Kim Jong Ken.

The Action Center is a first step towards implementing the "Nine Bridges" initiative proposed by the President of the Republic of Korea. As part of the Center's work, by the end of 2017, investors will be able to use a “hot line” to obtain information about the investment opportunities of the Russian Far East, tax privileges and tariff preferences established in the region, and government measures to support projects implemented in the region. The hot line also will help Korean investors to propose improvements in the investment climate in the Russian Far East and to report the implementation problems.

“NINE BRIDGES” IMPLEMENTATION PLAN DRAFTED

On September 7, 2017, speaking at the plenary session "Far East: creating new reality" of the EEF-2017, the President of the Republic of Korea pointed to the need for “nine bridges of cooperation," which include energy, rail facilities, the Northern Sea Route, shipbuilding, the creation of working groups, and agriculture. President Moon stated that all of them are priority areas for cooperation between the two states.

President Vladimir Putin supported President Moon’s proposal. Accordingly, the Ministry for the Development of the Russian Far East prepared a concrete plan to implement the "Nine Bridges" concept. The Minister for the Development of the Russian Far East, Alexander Galushka, presented the draft to the Korean government during his working visit to Seoul in early November 2017. Mr. Galushka noted that the first steps can be taken in the next five to six months. He also believes that the first landmark “Nine Bridges” project is the construction of a fish processing complex at Cape Nazimov in Vladivostok.

The Managing Partner of ART DE LEX, Dmitry Magonya, observes that, in each of the “Nine Bridges,” each country has something to offer to the other. For example, both sides are interested in the development of rail transportation across Russia to Samsung plants in Eastern Europe, as well as in container shipments of Samsung's cargo to the Kaluga region, where the main capacities of the Korean company are located. South Korea also needs to diversify its gas supplies from the Middle East, and Russia, in return, can become a major supplier of LNG to a foreign partner.

Dmitry Magonya also points out that the development of the Northern Sea Route and the creation of its port infrastructure, which is very poorly developed in the Russian Far East, offer possibly the most interesting and promising projects. The Russian Minister for Economic Development has announced that his ministry has already calculated the funds needed to develop the Northern Sea Route as part of the implementation of the “Nine Bridges” concept.

During a scheduled working visit to South Korea by Alexander Galushka in March 2018, the Russian Federation and South Korea will hold a "Korean Investor Day." The first such event was held in July 2017 in Khabarovsk and produced positive results for Russian-Korean cooperation, replenishing a portfolio worth more than $250 million in investment projects involving Korean businesses.

A FISHING INDUSTRIAL COMPLEX TO BE CREATED IN PRIMORSK

During the EEF-2017, the Far East Investment and Export Agency, Korea Trading & Industries, the Busan Port Authority, UNICO Logistics, and Korean Seafoods signed a Memorandum of Understanding and Cooperation to construct a fishing industry complex in the Primorsk territory. The facility will include a fishing port, a logistics center, and production plants for crab meat, fish fillets, and fishmeal. The construction will a joint project of several Korean companies.

The complex will be built in anticipation that the consortium will win the rights to use a complex located in the area of ​​Nazimov Cape in the city of Vladivostok, which has a quay wall under consideration, railway access, and access to engineering networks.

The five-stage project should be complete by 2022. The fish products from the complex will be shipped via the port of Busan to the countries of the Asia-Pacific region, as well as to Europe via the Trans-Siberian Railway.

The total amount of investment required for the implementation of the project is estimated at $130.