Customs Benefits for Imported Equipment Under Customs Union Regulations

Galina Dontsova
Senior Manager, Head of Customs and International Trade in the CIS
Ernst & Young

Recently, a lot of changes have been introduced into customs legislation that affect benefits for imported equipment. New rules adopted or planned for adoption in connection with the Customs Union (CU) of Russia, Belarus and Kazakhstan also have significant implications for benefits applicable to equipment. In this article, we have sought to summarize these benefits.

Exemption for In-Kind Charter Capital Contribution

An exemption from customs duty remains valid for goods imported as charter capital contribution. According to current Russian legislation, the exemption is granted on a contribution by a foreign investor provided that the contributed goods are not subject to excises, constitute fixed production assets and are imported within the time frame stipulated by constituent documents for charter capital contributions. The CU legislation introduces a similar benefit, but it is not clear whether the exemption applies to contributions from foreign shareholders only, or if Russian shareholders are also able to benefit from this exemption.

Goods exempted from customs duty as charter capital contributions are considered conditionally released, which means that customs authorities monitor their use according to the intended purpose: The goods shall be accounted in the entity’s balance sheet and used in its operations. Currently, the legislation does not set any time frame for such monitoring, whereas the CU Customs Code limits the monitoring period to five years. However, the status of goods imported before July 1, 2010, remains unclear as to whether the five-year monitoring period will apply to them.

Since rates of duty on many types of equipment decreased recently and at the same time customs requirements for conditionally released goods are becoming increasingly onerous for importers, the customs duty exemption with respect to charter capital contribution is getting less attractive. In addition, it should be noted that the customs authorities demand a deposit or a bank guarantee as customs duty security, thus, material amounts get frozen for a lengthy period of time.

An exemption of charter capital contributions from VAT was canceled as of July 1, 2009.

Technical Equipment With No Equivalent Produced in Russia

In 2009, the government approved a list of technical equipment with no equivalent produced in Russia and which is exempted from VAT upon importation. Unlike the customs duty exemption for charter capital contributions, the VAT exemption for technical equipment does not depend on the use of such equipment in line with its intended purpose and no restrictions are imposed by the customs authorities on disposal of such equipment. Presumably, exemption from VAT will remain in effect after July 1, 2010, that is, after the CU Customs Code becomes effective, but the final decision on this has not been made yet.

Technical Equipment for Investment Projects

The CU Customs Code is introducing a new provision to exempt from customs duty technical equipment imported under investment projects in national priority areas (industries) of a CU member country. This benefit also applies to raw materials and/or supplies, provided that such raw materials and/or supplies are not produced in the CU territory or, if they are, do not meet the technical specifications of the respective investment project.

According to the legislation, the CU Commission shall maintain and update the list of investments projects to which this benefit applies, based on proposals by the CU member countries, the list of imported technical equipment, components and spare parts for this equipment, the list of raw materials and supplies and define the procedure to monitor the intended use of goods imported for investment projects. As for now, none of the lists of equipment nor criteria for investment projects have been determined yet.

Temporary Importation With Installment Payments of Customs Duty and VAT

For types of equipment not covered by the exemption from customs duty and/or VAT, it is worth considering application of a temporary import procedure with customs duty and VAT to be paid by installments. According to the CU Customs Code, the maximum temporary import period is limited to two years. It is unclear whether the option to extend the temporary importation period by 34 months, and thus take advantage of interest-free installment payments of customs duties and VAT, as provided by current Russian legislation, will remain in force after July 1, 2010: Neither the CU Customs Code nor the recently available draft of the Federal Law concerning customs regulation in the Russian Federation contains provisions allowing for interest-free installment payments.

Other Customs Duty Exemptions

Finally, Resolution of the CU Commission No. 130 dated Nov. 27, 2009, concerning common customs and tariff regulation of the Customs Union of the Republic of Belarus, Republic of Kazakhstan and Russian Federation, retains the traditional import duty exemptions for goods purchased under international loan agreements, for baby food production equipment purchased with special purpose budget funds, for goods to be used for the purposes of Olympic Games, as well as for some other goods imported for special projects.