Russia: Facilitation of rules on industrial assembly agreements

Subject of Amendments

The rules on industrial assembly, which provide for a customs rate of 0% for certain car components, were recently amended by a Joint Order of the Ministry of Economic Development, the Ministry of Trade and Industry and the Ministry of Finance No. 381/2046/91n dated 21 June 2016, which came into force on 15 July 2016 (“Amendments”). In particular, the Amendments decreased the required percentages of local production to:

• 45% (previously 50%) for the fourth year since entry into an additional agreement on extending the initial industrial assembly agreements, and
• 50% (previously 55%) for the fifth year since entry into an additional agreement on extending the initial industrial assembly agreement.

Also:

• The terms for achieving particular percentages of local production were extended slightly,
• Some new reporting and calculation rules were introduced,
• Car bodies were added to the list of automotive components and units suitable for industrial assembly.

Relevance of Amendments

The Amendments are only relevant to car manufacturers which have already entered into industrial assembly agreements with the Ministry of Trade and Industry and later into additional related agreements on extending the terms of the industrial assembly agreements.

However, all industrial assembly agreements expire in 2019-2020 (on 31 December 2020 at the latest). Currently, there is no legal basis for any further extension, as such an extension would contravene Russia’s obligations under the WTO. In order to meet the demands of Western car manufacturers (such as Volkswagen, Ford and Nissan), the Russian authorities are offering alternative beneficiary investment instruments as special investment contracts (see our newsletter of 1 April 2016).