Investors are stimulated through tax incentives
In September, a meeting of the Government of the Russian Federation supported by a draft Federal Law "On amendments to the Tax Code of the Russian Federation", developed by the Ministry of Economic Development of the Russian Federation, providing the mechanism for stimulating organizations and individuals that invest in innovative companies. On October 23, 2015 the draft law was adopted in first reading by the State Duma. The concept of the draft law was supported by the RVC, the National Association of Private Pension Funds, National League of Asset Managers, National Securities Association, National Association of Stock Market Participants, and the Russian Venture Capital Association. The Director of the Department of Social Development and Innovations of the Ministry of Economic Development of Russia Artem Shadrin told the Rossiayskaya Gazeta about the document in detail.
- Artem Evgenyevich, what is the main point of the draft law?
- The document applies to bonds of Russian companies and investment units of closed mutual venture funds, relating to the high-tech sector of the economy, the tax rate of 0% on income from operations on realization or other disposal (including redemption), which already applies to high-tech stocks. The procedure for allocation of securities, traded on the Moscow exchange, to high-tech sector is currently determined by the Government of the Russian Federation and will be changed to reflect the expansion of the list of financial instruments that are subject to the tax credit. Since the goal of our draft law is to stimulate investment in innovative companies, the exemption will not apply to transactions in other securities.
In addition, the period of ownership of listed securities (shares, bonds and investment units), required to provide such exemption, will be reduced from five years, stipulated in present, to one year. This exemption will be temporary - since the entry into force of the draft law until December 31, 2022.
- What changes are planned to be made in the Tax Code of the Russian Federation for this purpose?
- The plan is to add articles 217 and 284, which regulate the taxation on income of individuals and income on profit of organizations with the provisions on applying the tax rate of 0% from operations on realization or other disposal of securities related to high-tech sector, and to add them with article 284.6 establishing the terms and specific features of the use of such incentives.
Also, the draft law provides for the temporary suspension of sub-paragraphs 2 and 3 of paragraph 2 of article 284.2, providing currently a five-year period of ownership of such securities to determine the tax rate of 0% on transactions with the shares of high-tech sector of the economy until December 31, 2022 (for the effective period of the exemption provided by the draft law).
- What benefits the companies will receive in case of applying tax exemption to income from operations on realization or other disposal of shares of Russian organizations on their bonds and investment units?
- Bonds of high-tech companies and investment units of unit investment funds also relate to the instruments of development of the high-tech (innovative) sector of the economy and are the source of their funding. Therefore, we decided to expand the list of financial instruments, on the income from operations of which this exemption can be applied. Its realization in respect of such assets will also create an effective instrument, stimulating the financing of innovative companies at later stages of development. There will be eased the provisions of attracting the financing by mature innovative companies through placing bonded loans. In addition, tax exemption should give impetus to the development of the market of share venture funds.
- What is the purpose of the reduction of the period of ownership by individuals and legal entities in shares and bonds, and investment units up to one year? What is the time frame of validity of this amendment?
- There is a mechanism that establishes, as a necessary requirement to receive the tax credit, a five-year period of ownership of such securities. It significantly reduces the inflow of investments in innovative companies in contrast to the traditional sectors of the economy. It is connected, inter alia, with the shorter stages in the development of innovative companies and investment cycles in the related assets. In particular, according to the Moscow exchange, investors in the high-tech sector of the Moscow exchange on the average hold securities even less than a year, and there are no investors, continuously holding shares from January 1, 2011 (the specified time is a reference point for the application of the current five-year exemption). Thus, the current period of share ownership of an innovative company is not a stimulating instrument for investment.
To 2023 (during the effective period of the tax exemption stipulated by the draft law) it will be possible to follow the dynamics of the market, which will improve the existing mechanism. On the other hand, the limitation on periods will contribute to the revitalization of economic entities in making investment decisions.
- What other actions could contribute to increased demand of investors for innovative products?
- It is about creating institutional conditions through the formation of preferences for small and medium-sized businesses on government procurement, the activities of innovation infrastructure (development institutions in the field of innovation, regional innovation clusters), improvement of the contract system. As the main manufacturer of this product is small and medium enterprises, large attention is paid to encourage procurements from such companies. To stimulate demand for innovative products of small and medium enterprises by big business, there has been created a relevant legal framework, and has been implemented an action plan ("road map") "Expansion of access of entities of small and medium business to procurements of infrastructure monopolies and companies with state participation". The programs of innovative development, having been implemented since 2011, are also an important instrument to stimulate demand for innovations by Russian state-owned companies.
Now, we are actualizing the Strategy of innovative development of Russia up to 2020, in the framework of implementation of which there will be provided many measures useful and important for high-tech sector of the economy. It is referred to the extension of grant support for innovative early-stage projects, measures to improve the management of intellectual property, mechanisms for the development of priority high-tech industries. We are expecting that in the beginning of next year it will be completed and adopted by the Government of the Russian Federation.