SPECIAL ECONOMIC ZONE TO BE CREATED IN RUSSIAN ENCLAVE INSIDE EU

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MOSCOW, April 13 (RIA Novosti) - A special body will administer the special economic zone in the Kaliningrad region, the Russian exclave at the Baltic coast, a source in the government reported.

The Cabinet is to discuss the amended bill on special economic zone in the Kaliningrad region.

"The document introduces the concept of administration of special economic zone. A department of the Kaliningrad region's administration will be in charge of the special economic zone. It will keep a register of participants and decide whom to grant to or deprive of the status of a participant," the interlocutor was quoted as saying.

According to the source, any legal entity can become a participant of the zone after presenting an investment project, which would use mechanisms of special economic zone.

The legal entity must be established in accordance with Russian legislation and registered in the Kaliningrad region. No less than 70% of the products must be manufactured in the region. No less than 90% of own and leased assets must be concentrated in the enclave, and 50% of the staff must be its residents. Moreover, all investment must be made in the region as well. Investors are to put 150 million rubles ($1 = 27.77 rubles) in the region's economy within three years. The funds must be allotted for investment projects. The zone's administration is authorized to dismiss participants, if the projects are not implemented.

Financial institutions, including banks and insurance companies, are barred from participating in the special economic zone. Those entities which were granted the participant status earlier enjoy the relevant customs regime for a transition period of 10 years.

In comparison with the 1996 law, the amended version simplifies the customs procedure, introduces a special customs regime for goods and services, which fall within the concept of special economic zone. It also suggests benefits concerning the sale of currency proceeds.

Goods that come within the ambit of common economic zone are imported into the Kaliningrad region free of customs duties and without restrictions the law envisages. The list of such goods and services will be considered separately. Excisable goods and prohibited imports are debarred from the customs regime of special economic zone.

Tomorrow's session of the Cabinet will reach the final decision on the introduction of profit tax benefits for participants of the zone, the source was cited as saying.

The document also suggests a simplified procedure for foreign investors to arrive in the region.

The Ministry of Economic Development and Trade forecasts that the bill will provide for a 10-15% annual growth of gross regional product during 2005-2010.

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