If 95% of business stays away from an area because everyone says it is an impossibly hard slog, that means that 5% of those who use their brains, disregard talking heads and do their own due diligence get to enjoy 95% of the opportunities
Thinking and acting outside the box is a reasonably expected outcome from situations that restrict trade, finance and opportunity.
Sanctions are one example. One American business acquaintance of mine returned this weekend from the Crimea where he has been since mid-April. I have rarely seen him so animated and positive from business results and anticipating future opportunities.
“Paul, you were right,” he said. “You encouraged my trip and said wherever there is a perception of instability you had better go and see for yourself, because in most cases it is only noise masking potential”.
So much for money making 101. If 95% of business stays away from an area because everyone says it is an impossibly hard slog, that means that 5% of those who use their brains, disregard talking heads and do their own due diligence get to enjoy 95% of the opportunities.
The Crimea has been such a place since 2014 for two-percenters, and only now are the 5% filing in. When the new legislation is established on the books then the thundering herds will be elbowing each other to get in on the business. There is something to be said about timing being a key component of success.
One strong attractor in the Crimea opportunity is the quiet, supported, steady progress ongoing within the State Duma introducing changes specific to the Crimea. Changes to both the Tax and Civil Code and several Russian laws, which may help foreign investors conduct business and live in Crimea.
Simply stated it would serve as the foundation for the creation of the Crimea offshore zone. One politician even named it the new “Russian Monaco”. Some within the RF see the Crimea as a test bed for progressive tax initiatives under consideration for other regions of Russia (Siberia, Far East) as a means to stimulate FDI, local investment, growth and opportunities.
Tax competitiveness, especially in the surrounding regions of Europe is sorely lacking. This will interest both foreign and Russian investors, create employment and foster development through increased earnings of foreign exchange and exports. The benefits of tax competition, particularly in offshore tax havens, have produced the spillover effect of better enabling governments in resource limited regions to build schools, upgrade and build roads, provide primary health care and better maintain social stability through a strengthened economy.
Despite the key role of taxation in national budget planning and social services, tax competition through lowered taxes and tax breaks may reduce government revenue, but it enhances other means to generate income by a welcoming environment that should discourage tax bases from emigrating, at the same time creating jobs and stimulating cash flow and enterprise.
Sometimes I think back on history, recalling that the spark of the American Revolution was the Tea Tax which was a scandalous 5% at a time when there was no income tax. Today, even with taxation levels well over 40-50% in the western world there just isn’t enough money to satisfy the governmental desires. It is a winding spiral with no happy ending I can discern. In comparison Russia looks fair at 13% flat tax on income, and the Crimea as a special situation region may turn out to be even better.
From what I understand as of this writing, is the new developing legislation should allow setting up of international trusts by anonymous investors. Crimean companies would be able to use foreign investments from these trusts.
Additionally, the Crimea would be designated as a special global transit zone where residents become tax-exempt. If a non-Russian wishes Russian citizenship there is a fast track if they invest the equivalent of US$1 million in Crimea business. Tax on income and wealth would also largely be gone. In place of this, residents would have to pay instead a simple annual fee of approximately 90,000 rubles based on today’s rates. Furthermore, it is planned financial operations in this global transit zone would not come under the control of the Russian Currency Code.
How much of this ongoing legislation will pass into law is a good question. Whatever final form this initiative takes before finally becoming law, one thing is certain, the Crimea will be the beneficiary of progressive, forward thinking financial legislation at this crucial time when it is most useful.
Refreshing also is the healthy mindset of legislators who are addressing real regional needs with practical concepts untainted by political-think/speak. It should also serve to highlight the regions of Russia as being committed to doing business and willing to use common sense, and pragmatic means to make it happen.
As a postscript, today Kiev delivered yet another humanitarian gift to the Crimea after cutting off electricity. This was probably in honor of May day, and to encourage out-of-the-box thinking on Crimea. As of April 30th the Ukraine cut off Crimea from all water supplies which historically were obtained from the river Dnieper via the North-Crimean canal.
This effort, according to Ukrainian news sources was made possible by a new purpose-built dam constructed this past year at a cost of US$1.3 million. They simply shut down the sluices, drying up the canal. It now looks like the Crimean peninsula is well and truly an offshore zone, not just economically, but from a simply human standpoint in getting a glass of water.
Paul Goncharoff is Chairman, Disciplinary Committee, National Association of Corporate Directors, Russia
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