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. Last Updated: 07/27/2016

St. Pete Forms New Tax-Friendly Zones

ST. PETERSBURG — The St. Petersburg Legislative Assembly has adopted laws creating two new economic development zones in the city, freeing companies in those areas from paying some local taxes.

One of the zones is Tsarskoselskaya, which covers the Pushkin and Pavlovsk suburbs of St. Petersburg. Businesses here will be required over the next several years to pay just 40 percent of all local taxes.

The other zone, however, dubbed Izhor, is taken up entirely by the properties of one factory — the famous tank and pipe manufacturer Izhorskiye Works, which is owned by the Uralmash-Izhora holding.

The Izhora economic development zone frees the factory from paying some property taxes, land taxes and transport taxes through 2010.

Alexander Ivanov, director of the Izhorskiye Works center for restructuring, said the big prize for the factory would be a 30 percent reduction in the overall property tax burden. Ivanov estimated that this alone would let the factory save 70 million rubles ($2.5 million) a year.

The logic behind the Tsarskoselskaya zone seems clear. Sergei Odokienko, chairman of the St. Petersburg City Hall committee for economics and industrial policy, said it was the logical continuation and expansion of a previous economic development zone called Pushkinskaya that lapsed in May 2000.

"Companies that were residents of the Pushkinskaya zone increased their payments into the [municipal] budget by 1 1/2 times," said Odokienko.

If the Pushkinskaya zone covered just the Pushkin suburb, Tsarskoselskaya will expand the tax breaks into Pavlovsk as well.

It is estimated that the plan will save Izhorskiye Works up to $2.5 million a year.

"Pushkin and Pavlovsk aren’t making full use of their tourism potential," said Odokienko.

"Freeing companies involved in creating tourism infrastructure from 40 percent of all local taxes will help create conditions for investment."

St. Petersburg now has three economic development zones: Gavan, Polustrovo and Kronstadtskaya.

The Gavan zone is taken up by the Lenexpo exhibition complex and Lenexpo’s daughter companies. These companies only have to pay 50 percent of their property, profit and land taxes through 2006.

The Polustrovo zone is home to the Polustrovo company, which is building a residential housing complex there in cooperation with Stroitelny Trest.

The zone offers a complete freedom from profit and property taxes.

The Kronstadtskaya zone, on the small island of Kronstadt, is mostly home to small companies that have only been asked to pay 40 percent of profit and property taxes.

In order to take good advantage of the new tax breaks, companies must register themselves as residents of the economic development zones. Doing so involves submitting to St. Petersburg City Hall a full business plan describing the company’s activities.

Ivan Oskolkov, an analyst with the consulting company Labrium, said some companies previously registered elsewhere but located in Pavlovsk and Pushkin would do well to reregister themselves to take advantage of the quotas. This has now begun setting off disputes between different city regions for their tax revenues.

Other tourism-dependent suburbs of St. Petersburg, such as Lomonosov and Kurorotny, will start lobbying for economic development zones of their own.