Entrepreneurship in Moscow: great opportunities for everyone
It might sound as a surprise for many but Moscow agglomeration has one of the largest economy in the world. To be more precise it is bigger than all the cities in world except New York, and all the countries except top-25.
It has started seven years ago when new mayor Sobyanin was elected. Since then Moscow’s GRP has increased by 40%. It is the product of a hard and complex work made by the new team in every aspect of urban life: investment attraction, market whitewash, human capital potential fulfilment, state-of-art infrastructure development, and all urban processes optimization.
One of the key policies led by the city office was to create better opportunities and environment for small and medium enterprises. Such an effort has restructured municipal budget drastically. Now SME is a key source for city’s budget sustainability, adding up a quarter of all the inflows, whilst its share was about 17% 4 years ago. Sole proprietorship has become a key issue within this policy.
Since 2010 the amount of solopreneurs has increased by 87% and reached 300 thousand enterprises. 60% of this type of business lies within service industry, and 25% – retail. Such a success is due to several objective reasons:
1. Moscow consumption market ranks top-3 in Europe after such developed cities as London and Paris;
2. Capital of Russia is one of a key world’s and national arena for a variety of events such as World Cup or, Urban or Finance forums;
3. The city tends to adjust to contemporary quality of life standards, heavily investing in different types of vital infrastructure such as transport, open spaces, utilities, housing, educational and health facilities;
4. Moscow is ranked in top-20 business hubs of the world, being home for more than 60% of transnational corporations (in comparison, Paris – 56%);
5. Investment opportunities of the city are assessed as top-5 in Europe;
6. Moscow is a huge transport hub between Asia and Europe, what made the city to become one of a key location of OBOR project, led by China;
7. Moscow taxation system is ranked top-1 in Russia for the last three years in a row.
A key achievement for sole proprietorship is a complex tax reform, that has also implemented a new instrument for Russian entrepreneurs – taxation patenting. This new instrument is developed in order to encourage sole enterprises uncover and register their businesses in governmental bodies. The city administration has done a huge legal, financial and technical work both with internal departments and external federal agencies. At the end of the day they developed two straightforward solutions: a significant reduction in a tax rate and complete simplification of all the legal procedures for solopreneurs.
Taxation patenting covers over 80 different types of businesses. A key feature is that a patent is acquired by an enterprise instead of paying different types of taxes such as VAT, TIPI, net worth tax, sales tax. Moreover, an acquisition can be split in two parts during the year. Its price is calculated as 6% of a potential income, in other words, it is the lowest taxation rate possible. The acquisition process takes five days only and that’s all: there is no need for an experienced accountant, tax statements, and cashiers. Moreover, as long as federal VAT rate would be increased from 18% to 20% since 2019, this kind of initiative becomes vital for solopreneurs.
Patent taxation is a federal initiative, but it varies in different regions. What makes Moscow patenting valuable comparing to other Russian regions is that its pricing differentiates according to a variety of factors. For instance, patent for enterprises wanting to rent out residential properties in the city center would be way more expensive than the same patents in the city outskirts. Such a pricing flexibility creates more solid income expectations for entrepreneurs and helps to unlock city’s potential in a more efficient way. Another important feature of Moscow patenting is that it may grant tax break for two years for some of types of business activities, home tutors, maintenance crews, city guides, etc. – all the types of economic activities that people tend not to register in official bodies.
This led to some impressive results. First and foremost, the total amount of solopreneurs has increased by 11% during the last year. The city has issued 66 thousand patents (+17% compared to 2017) and it has brought $80 million directly to the city’s budget (+19% to 2017). Given such a success the city expects further growth in this direction and increase in money influx into city’s treasury due to market whitewash through patenting mechanisms.
In forthcoming decades, Moscow will be implementing a variety of legal and financial tools and frameworks that would stimulate economic activity of all city agents. This trend uncovers city potential to become one of key world’s economic center and thus creates great opportunities for the city in the global competition for human capital.