Offset agreement in Moscow: opportunities for foreign investors

An offset agreement is a long-term supply contract with counter investment commitments. In other words, the investor opens a new production in the city, and the city guarantees that it will buy its products for several years.

For Moscow, this is a relatively new format of cooperation, mutually beneficial for both the government and business. Previously, conventional contracts were used that lasted from a few months to a year. After its termination, cooperation also stopped. Accordingly, there was no incentive to engage in long-term investments.

The new federal law allows for long-term contracts for several years. Suppliers using them should not only sell their products to the city, but also create ultra-modern production facilities in Moscow.

Since 2017, Moscow has entered into 5 offset contracts - with manufacturers of medical devices, pharmaceuticals and food products.

What are the features when concluding an offset agreement?

1. The term of the offset agreement is limited to 10 years.
2. The minimum investment should be 1 billion rubles.
3. In the contract mentioned the maximum period of creation or modernization and (or) development of production. After the fulfillment of all investment obligations, the supplier-investor is included in the register of the only suppliers in the constituent entity of the Russian Federation.
4. The contract also defines the executive authority, which establishes the procedure for determining the marginal price of goods, the production of which is created or modernized, as well as the procedure for determining the contract price 
5. The supplier-investor provides the execution of the state contract in terms of investment obligations in the amount of 2 to 5% of the investment volume.

How is it beneficial for foreign investors?

The main advantage for a foreign investor is the obtaining of a reliable partner (in the form of the Moscow Government), which is guaranteed to purchase its products. The contract even prescribes the exact volumes and terms during which the city will buy it out. 

In addition, such enterprises are included in the regional register of the only suppliers. State customers of the capital can conclude contracts with such suppliers without competition.

In what areas can you sign an offset agreement in Moscow?

At the moment, Moscow has the practice of concluding such contracts only in the field of medicine and food production, however, the city's needs are not limited to these areas. Moscow is ready to explore new areas in offset contracts. At the moment, the Government is guided by such directions as:

• Transport
• Equipment and materials for housing and communal services
• IT equipment

An offset contract is a fairly convenient mechanism for a foreign investor in Russia and can be used now. It does not provide explicit tax incentives, but it guarantees product demand and allows for capital expenditure planning.

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If you have questions or need advice on concluding an offset agreement n Moscow, you can leave a request in the feedback form or contact our specialists:

Maxim Kuznetsov - vice-president of the RAUIE
investment@raspp.ru
WeChat: maximkuznetsov