The seminars and a brochure that is available on this subject are jointly sponsored by the CTDC and the United States Peace Corps in Ukraine. Other participating groups are Tavrichesky Consulting Group and Nikitski Botanical Gardens. Primary funding for the project is from the United States government through the Microenterprise Project Fund.

The seminars focus on practical issues, such as how enterprises can qualify for the benefits of the new law, how special trade zones have operated in other countries, and how enterprises have succeeded in Crimea's experimental "Sivash" trade zone. The schedule for these seminars is:

Seminar panelists include governmental officials, representatives of CTDC, representatives of the United States Peace Corps, members of the Tavrichesky Consulting Group, and businessmen from enterprises located in the "Sivash" zone.

Members of the press are invited to attend all seminars. (See 31 July 2000 press release.)

For more information, please contact:

Crimean Tourism Development Center (CTDC); 98600, Yalta, Crimea, Ukraine
Telephone: 380 (654) 32 42 43 and 32 89 98;  Fax: 380 (654) 32 23 65
Email: ctdcyalt@mail.ylt.crimea.com

To learn more about the new trade zones <=click here
To read the Ukrainian Presidential Decree <=click here
Photos, text and webpages used here are copyrighted by CDTC

Where trade zones are in Crimea

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Where Ukraine is in Europe

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How to get to CTDC in Yalta Fly or take train to Simferopol, then take a bus or taxi to Yalta center. CTDC is on the third floor of the Crimea Hotel. The seaport of Yalta is a major cruise ship destination. Weekly boats go to and from Instanbul in Turkey, arriving in Yalta Monday mornings.

To help businesses and investors learn of this new opportunity is the goal of seminars -- intended for managers of Crimean resorts, tourism services, energy developers, entrepreneurs and students. These seminars will be conducted by CTDC and TCG and by the United States Peace Corps in Ukraine and Nikitsky Botanical Gardens, which initiated this project. The seminars -- in August-October 2000 in the towns of Yalta, Alushta and Schelkino -- are being followed by a media roundtable about how "real" are investments.

A brochure will assist the seminars in explaining organizational, legal, and other preparations that enterprises need to make in order to receive investments. Examples will be given of business plans for projects that take into consideration peculiarities of foreign investments and especially marketing plans, without which foreign investors simply do not consider investment proposals.

The roundtable for representatives of mass media, as planned for early October, marks the end of this seminars-brochure program. However, this website is intended to continue to develop case studies of successful investments that may serve as models for other enterprises that later pursue similar opportunities here.

The brochure, being published mainly in Russian, may be requested by sending electronic mail to ctdcyalt@mail.ylt.crimea.com.

Organization of this program is executed by the Crimean Tourism Development Center, the United States Peace Corps in Ukraine, Tavrichesky Consulting Group, and Nikitsky Botanical Gardens. The program is financially supported by the US Peace Corps in Ukraine.

The Peace Corps is a non-political agency of the United States government created in 1961 by President John F. Kennedy. Since then, over 155,000 Americans have served as volunteers in 134 countries. Peace Corps/Ukraine was established in 1992. More than 600 Americans have served in Ukraine in three program areas: Business Development, Teaching English as a Foreign Language, and Environmental Protection. American volunteers, who come from all walks of life, make a two-year commitment to service. (See descriptions of current Peace Corps volunteers in Yalta and throughout Ukraine.)
 
 
 
 
 
 
 
 
 

 
 
 
 
 
   
 
 
 
 
 
 
 
 

 
 
 
 
 
 

Essentially, the law identifies certain geographic regions in Crimea for special economic treatment and incentives for a period of 30 years. The stated purpose of the law is to attract investment in the areas of public health, recreation, tourism, agriculture, and manufacturing. Seven geographic areas (Greater Yalta, Alushta, Sudak, Feodosia, Sivash, Kerch and East Crimea) are denominated "territories of priority development". In addition, an area of 27 hectares in the city of Kerch is denominated "Port Krim".

The law next establishes a hierarchy of governing bodies for the newly-defined territories. The Council of Ministers of the Autonomous Republic of Crimea is mandated to establish a separate Council ("Council") for the development and regulation of both the territories of priority development and Port Krim. Importantly, however, power over the newly-created areas is shared between the Council and the local self-governments. While not set forth in the law, the Council will include the mayors (or their representatives) of each of the cities. Also included will be the Prime Ministers and the Ministers of Finance, Economics, Customs and Taxes from both the government of Ukraine and the Republic of Crimea.

The Council is given broad powers, including the power to develop and implement a strategy for the development of the new zones. The Council is also empowered to approve investment projects, to develop and submit to the Council of Ministers a list of priority economic activities, to prepare leasing rates, etc. -- for approval by the local governments and to resolve disputes (between businesses and local governments) prior to the institution of legal proceedings. While local governments are to be the actual contracting entities with businesses located within the zones, the Council is to approve all such contracts.

The law is quite specific as to the requirements a business must meet in order to qualify for tax and duty exemptions and what those exemptions are. The law treats the territories of priority development separately from Port Krim. With regard to business established in the territories of priority development, the law sets forth minimum "money values" of projects in order for those businesses to qualify for tax and duty exemptions. For example, in the fields of preserving historical inheritance and nature, information technology, forestry and sports, the minimum value is USD 100,000. In the fields of hotels, restaurants, tourism and recreation, the minimum is USD 500,000. In certain instances, the dollar amount is halved if the business employs at least ten people.

Qualifying businesses are exempt for a period of up to five years (the exact time length to be determined by the Council) from import duties and VAT. Profits are exempt from taxation totally for a period of three years (and then at 50% of the prevailing rate for the next two years). Certain industries are further granted an exemption from the payment of duties to the State Innovations Fund for a period of up to five years. Investments in qualifying businesses are also exempt from income taxes. Further, qualifying businesses are exempt for a period up to five years from certain land-related expenses (such as territory planning and infrastructure). Finally, qualifying businesses are exempt from the normal restrictions on foreign currency transactions. These exemptions do not apply to gambling businesses.

In order to qualify for tax and duty exemptions in Port Krim, a business must fit into one of several broad categories (service of transit cargoes, their storage, completion, sorting, packing, rendering carrier services, commerce, using new technologies for production of goods for exportation and supply of the home market), obtain permission of the Council, and pay a fee (which will be used for development of the infrastructure within Port Krim). Gambling operations are not allowed. Qualifying businesses are eligible for special tax and duty treatment. Profit/income taxes are capped at 20%. Dues to the State Innovation Fund are 50% of what they would otherwise be. As in the territories of priority development, sums invested in a qualifying business are not included within reportable gross income. Additionally, qualifying businesses are exempt from land taxes for a period of up to five years. Further, qualifying businesses are exempt from the normal restrictions on foreign currency transactions. Finally, special rules are established for customs duty and VAT, depending on the origination and destination of the goods. For example goods imported from outside Ukraine for use within Port Krim are exempt altogether as are goods completely manufactured within Port Krim and exported outside Ukraine. Goods imported into Port Krim from other parts of Ukraine receive no such exemption.

BUILDING ON A PROVEN MODEL

The basic thrust of the new law is not new -- to create strategic geographic areas where local businesses are free from regulatory and tax burdens. Such zones have been used with varying degrees of success in Western countries for a number of years. They have been implemented in both developed and developing countries. No one specific scheme of exemptions has been employed in all countries. Rather exemption schemes have been tailored to meet the regulatory and tax regime of the country and the specific type business development sought.

One notable example of success is the Shannon Free Trade Zone ("SFTZ") in County Clare, Ireland. SFTZ was established in 1947 at a time when the Republic of Ireland was experiencing many of the same issues facing Crimea today (high unemployment, the emigration of talented young people for economic reasons, and little foreign investment). The incentives offered by SFTZ were impressive, and not unlike the incentives offered by the new law in Ukraine. Businesses locating in SFTZ were exempt from VAT, excise and import duties, and partially exempt from corporate profit taxes. SFTZ management took advantage of its location at a major gateway airport to Western Europe and promoted the zone as an international distribution and warehouse center serving Western Europe.

It is not suggested that the new law in Ukraine will bring the same level of benefits to Crimea that the SFTZ has brought to Western Ireland. While there are similarities, there are certainly differences between the Irish economy in the second half of the 20th century and the current economic condition in Ukraine. What is important to note, however, is that the governments of many Western countries have successfully employed similar packages of tax and regulatory relief as contained in the new Ukrainian law to assist faltering or depressed economies.

Another example is the special trade zone which was established in Portugal's offshore island of Madeira in the 1980's. All of the activities at the Madeira International Business Centre ("MIBC") are exempt from taxes, namely from profits until 2011, and from exchange controls. MIBC is operated and administered by a private company, Sociedade de Desenvolvimento da Madeira, S.A., which is fully supported by the Autonomous Region of Madeira.

MIBC was developed in order to complement tourism as the main industry of Madeira's economic structure, to find alternatives which could compensate for a potential crisis in the traditional sectors of the island's economy, and to insert Madeira into the globalization process which was then occurring in international markets. The Autonomous Region of Madeira and Crimea have similar motivations as well as comparable locations. Crimea is a potential gateway to Eastern Europe, to nations of the former Soviet Union, the Middle East and Asia. Like Madeira, tourism is a mainstay industry in Crimea which can be complemented and enhanced by special economic trade zones.

Special economic trade zones are no longer limited to the West. In China, for example, the establishment of a free trade zones is an important measure adopted by the Chinese government to expand its opening to the outside world and attract foreign investment. In China free trade zones are small, special districts with closed access facilities. The customs service supervises the areas. The zones combine export processing and foreign trade, implementing special tariff policies. Since 1990 thirteen zones have been approved, including the 3.28-square-kilometer Waigaoquiao Free Trade Zone in Shanghai (currently the most "open" free trade zone in China), the 5-square-kilometer Tianjin Free Trade Zone (the largest zone in north China), and the 1.25-square-kilometer Dalian Free Trade Zone (which is an important window on northeast China's opening to the outside world). All thirteen zones had started operations by March, 1994. Recent figures show that 5,813 enterprises have been approved for entry into the zones, 3,404 of which were foreign-invested enterprises. Total investment in all zones was a combined USD 8.8 billion (of which USD 3.4 billion had been expended). While the specifics of the Chinese culture and economy may differ greatly from that of Crimea, at least one of the ingredients leading to the success of the Chinese experiment (geographic gateways to new markets) should be a good portent for business development in Crimea.

CHALLENGES IN ADMINISTRATION

The new law contains both specific and general provisions. The listing of exemptions, for example, is quite specific and detailed. On the other hand, the mandate given to the Council is quite broad, with significant general powers of administration ceded to it. Given that it is impossible to predict the myriad of issues with which the Council will be faced, the decision to grant the Council broad powers is understandable.

From a practical standpoint then, the success of the new law will be determined, to a very great extent, by the decisions the Council makes in implementing the law. Enlightened governance could result in a program which significantly benefits all of Crimea, if not all of Ukraine. Shortsighted governance could result in negating the true intent of the law.

Perhaps a few examples will illustrate this point. In Subdivision 16, the Council is given the authority (with the consent of the Ministry of Finance) to establish fees to be charged to businesses locating in Port Krim. The assessed fees are simply to be used "for development of infrastructure of the special economic zone in accordance with the order established by the Council with the consent of the Ministry of Finance of Ukraine". While this grant of authority is both logical and probably necessary, it has the potential for abuse. Inflated or unnecessary infrastructure service contracts, the costs of which would be passed on through the fee structure to the businesses located in Port Krim, could cripple a fledgling business. The potential for harm would be greatest at the outset of the program when presumably only a few businesses would be located in Port Krim, and, therefore, sharing these costs.

Likewise the "gatekeeping" function of the Council (what business projects to approve for inclusion in the territories of priority development as well as Port Krim) has the potential for abuse. If truly deserving projects are denied admission, or marginal projects approved, the intent of the law may be frustrated. Again, the authors recognize that certain flexibility must be given the Council in this important function. Subdivision 9 merely provides that the Council has the authority in "approving investment projects in accordance with the order established by the Council of Ministers of Autonomous Republic of Crimea with the consent of the Cabinet of Ministers of Ukraine". It appears that the legislative intent is to allow the Ministers the ability to establish guidelines for the acceptance or rejection of projects, with the final decision for specific projects resting with the Council. It is simply suggested that any guidelines should be specific enough to promote reasoned decisions by the Council, yet broad enough to allow the Council the flexibility needed to deal with a variety of different proposals. The "gatekeeping" function is critical to the law. Ultimately, the success of the law will depend on the decisions made by the Council.