On April 1, the Russian government supported a bill that allows companies to receive an income tax deduction for investments in Russian startups. One of the conditions is that investments must be made through investment associations.
The reduction of the tax burden will make investments in startups more attractive for organizations, according to analysts and venture investors interviewed by RB.RU, but at the same time there are risks of abuse: for example, the use of this tool to tax evasion. Furthermore, the proposed mechanism will be difficult for large corporations.
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The bill approved by the Council of Ministers provides for a reduction in income tax in an amount equal to or proportional to the size of investments.
Previously, you could also request the benefit, but for other reasons: if the money had been invested in the modernization of the company itself or in the infrastructure of the region.
Reasons to choose investment companies
In general, investment companies are analogous to foreign companies, says Managing Partner of the consulting firm “2B Dialog” Boris Bogoutdinov.
Founder of the analytical company Dsight Arseniy Dabbakh describes an investment company as a way of structuring investment funds (GP/manager-LP/investor). According to him, “it is logical that the State wants to stimulate those legal entities/forms of organization of investment funds that it can manage and control.”
Bogoutdinov adds that since 2018 they have been trying to implement investment tax deductions throughout the country on the basis of traditional companies with assets:
“Unlike previous years, today, in a context of tightening tax control, the tax deduction seems to be a kind of attempt to return part of the funds invested to motivate companies.”
Impact on the market
According to the plans of the Ministry of Finance, the tax deduction should stimulate investments in fast-growing high-tech companies and the innovative sector of the economy. Experts believe that the innovations will generally have a positive impact on the Russian venture capital market, but they also mention a number of disadvantages.
Taking into account the current rhetoric regarding the development of the national innovation market, such a trigger will have a positive impact on the national venture investment market, he believes. Managing Partner at 2B Dialog Boris Bogoutdinov. The problem, he says, is that the venture investment market in Russia is still quite weak.
Dsight Founder Arseniy Dabbakh It does not exclude that if the law works, perhaps in 6 to 18 months a significant effect can be seen. According to the expert, many investors are choosing to invest through investment associations, including Tiltech and KamaFlow.
Elena Kolmakova, managing partner of the bizsmall investment platform believes that, on the one hand, the reduction of the tax burden will make investments in new companies more attractive for organizations, and an increase in capital inflows can accelerate the growth and development of high-tech companies. On the other hand, the difficulty of defining “innovative projects” can lead to abuse, and the need to control the use of funds can become an additional administrative burden.
Implementation difficulties
Founder of Dsight Dabbah believes that, by implementing the initiative, there may be a loss of tax revenue and abuse of this instrument by “large rich people when the purpose of investing in the fund is to evade taxes.”
“This measure can increase social inequality, since the rich have investment capital and, consequently, the law will help them preserve/increase their wealth even more. Therefore, along with this measure, the State is considering introducing taxes on the super-rich,” Dabbah added. “The costs and complexity of managing the implementation of this law can be significant for both administrators and the State.”
The main difficulty will be the technical component in terms of the profitability of a part of the investment and the fiscal risks in the framework of monitoring associated with the close attention of government agencies, he adds. Managing Partner of 2B Dialog Bogoutdinov.
Managing Partner of iZBA VC Renata George She believes that the question also arises of how large corporations will participate in this type of investment partnership, because, according to her, more and more corporations are formalizing their venture funds as separate legal entities.
“It turns out that these legal entities must invest in investment companies. But with such a scheme, it is unlikely that the parent company will be able to return the tax deduction. For example, in the proposed model, banks are immediately excluded, because they are unlikely to be able to invest directly from their balance sheet,” George said.
At the same time, the expert believes that the scheme will have no restrictions for companies in the medium-sized business segment. The managing partner of iZBA VC noted that there are currently few investments from this type of companies and that this is a good attempt to increase their activity.
I agree with Jorge managing partner of bizmall Elena Kolmakova. According to her, investment companies, unlike venture capital funds, are more accessible to small investors.
The need to improve legal standards is seen by CEO of Infoline agency Ivan Fedyakov. However, according to him, the problem is not tax incentives, but the inability to legally protect minority shareholders from hostile actions by large shareholders.
“In Russia, a large shareholder can do whatever he wants with minority shareholders: dilute their shares, remove them from capital, not share financial statements, not report on economic activities,” explains Fedyakov.
This, according to him, does not imply the investment attractiveness of the projects, regardless of the tax benefits that can be obtained in this case.
Other ways to stimulate investment
Experts interviewed by RB.RU did not reach a consensus on how to stimulate investment in Russian projects. Among the measures that could influence this are public relations for technological entrepreneurship, alternative benefits, legislative guarantees for shareholders and even the work of the judicial system of the Russian Federation.
Any incentive should be based on the main thing: the existence of a large number of attractive projects, he considers. co-founder of United Investors Alexander Gorny. According to him, their number can be increased in the long term through active technological entrepreneurship public relations and educational programs, “ideally starting from high school.”
Managing Partner iZBA VC George reported that, along with the bill on tax deduction for investments in Russian startups, another option was being discussed on the market: these were benefits from the use of products of Russian developers by corporations.
“This would encourage Russian corporations and medium-sized businesses to more actively use Russian services and pay them money for products,” says George. “It’s often better than investing.”
General Director of Infoline Fedyakov believes that three things can stimulate investment in Russian startups: the first is the guarantee of shareholders’ rights, the second is the honesty and integrity of the courts of the Russian Federation, the third is to ensure the investment attractiveness of projects not only for Russia but also for foreign investors.
Author:
Anastasia Marina
Source: RB
I am a professional journalist and content creator with extensive experience writing for news websites. I currently work as an author at Gadget Onus, where I specialize in covering hot news topics. My written pieces have been published on some of the biggest media outlets around the world, including The Guardian and BBC News.
