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Kaliningrad tax breaks could be abolished

  • 2004-12-22
  • From wire reports
VILNIUS - Planned changes in tax policies in Russia's Kaliningrad could force many Lithuanian companies to revise their investment plans in the exclave, the daily Lietuvos Rytas wrote last week.

Russian authorities are reportedly preparing to reduce - or eliminate outright - certain tax exemptions and reductions currently enjoyed by investors in the exclave. It is planned that the tax concessions - mainly a deep reduction in VAT - will only be provided to large businesses that have invested at least 10 million euros in the Russian exclave.

More than 600 Lithuanian-owned companies currently operate in the free economic zone - many of them ostensibly to avoid taxes - but only a few would qualify under the proposed requirement.

"Lithuanian businesspeople who are working here are worried, since no one can say today whether the tax privileges will remain in place tomorrow," Donatas Butkus, economic attache at the consulate general in Kaliningrad, was quoted as saying.

Tax incentives and cheaper labor are the main factors that have lured Lithuanians to invest in Kaliningrad. Some clothing, furniture and confectionery firms have moved part of their production to the isolated Russian region. According to the report, Lithuanian companies that have already invested in Kaliningrad hope that the tax increases will be phased in over 10 years.

The free economic zone was established in Kaliningrad in 1996, but according to many Russian economists it has failed to produce the expected economic results.