Ilya PonomarevChairman, Subcommittee on Hi-tech

DevelopmentState Duma – Russia Parliament

Doing Business in Russia – Innovation, Software Development Services and Sales Opportunities Workshop

Boston, April 17th, 2008

Deficit of serial entrepreneurs No tradition No education

Complex tax system (some 51 taxes)

IP rights: Bureaucratic burdens for new

patents Gap between R&D institutions and

business Uneven business infrastructure Russian business environment still

separated from the rest of the world: Lack of international investors Incompatible legal system Limited international expertise,

language barrier Russia’s image is associated with

high risks

How we can distinguish hi-tech business?

What are marketing priorities: overseas markets, local companies, state institutions?

Where new businesses will be born: R&D institutions, large businesses, small business, international corporations?

Is there anything government could do: in legislation or at agencies level?

Wide choice of unmarketed technologies

Highly educated specialists, especially in math & CS, physics, chemistry, biology

Huge state financial resources (600+ bln. USD): Public institutions need IT

services New infrastructure is being

build (telecom, hi-tech parks, …)

Investment bodies are being created: Rosnanotech ($10 bln.), Rosinfocominvest ($100 mln.), Russian Venture Corp. ($1 bln.), …

Building new economy was declared #1 priority by acting President and President-elect

•Support of particular projects in prioritized technological areas (like Rosnanotech for nanotechnologies)

•Seed investments and R&D funding (Bortnik Fund)

•Creation of business environment for new enterprises (start-ups, spin-offs)

•Closing gap between education, science and business

•Equity investments in start-ups and growing companies (Rosinfocominvest)

•Support for traditional R&D centers (Science Cities Task Force)

•Multilateral R&D funding without specific objectives (Russian Fund for Fundamental Research)

•Development of new technologies for possible future use (Russian Academy of Sciences)

•Tax and customs vacations in Special Economic Zones

•Support of regional VC funds through Russian Venture Corp.

Seed investments and R&D projects financing

Support of major R&D centers

Hi-Tech Parks, equity investments

Special Economic Zones, support of VC funds

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Ministry of Science and EducationMinistry of IT & TelecomMinistry of Economy

RESEARCH & DEVELOPMENT COMMERCIALIZATION PRODUCTION

Initiated by President Putin in 2005 Federal Task Force established in

2006 Construction began in 2007 To be completed in 2010 $1,1 bln. of public funds est. $7 bln. of private funds Each hi-tech park is approx.:

40 to 100 hectares of land 100000-200000 sq.m of office

space 250000-350000 sq.m of

resident spaceplus Production facilities Social infrastructureand a major education or R&D

center Project is now open for estate

developers and resident companies

7

8

Office premises Class A-, B+ Differential rent price Conventional office services (call-center,

reception, conference rooms, …) Telecommunication and data services

Laboratories and production facilities Shared equipment Warehouses and logistics with dedicated

customs office Legal services

Patent attorney Financial services (banks and funds) Mortgage program for resident

companies Integration with educational institutions Social programs

Medical insurance Sports Leisure centers

Security

Publicly develop and submit into the Parliament a set of laws – the Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies

Eligible companies do not pay any taxes (incl. income, VAT, social, property), except one – revenue tax (6%) With a social benefits vacation

amendment – 3% To become eligible, according to

initial draft of the law, company should file an application for Ministry of IT and Telecom Should be changed in favor of

accredited self-governed NGOs First reading passed during Fall

2007 Second reading expected in

Spring 2008 Unresolved issue of VAT returns

Publicly develop and submit into the Parliament a set of laws – the Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies IP rights reform:

Establishment of National Data Bank of Ideas and Technologies

Alternative way to secure IP rights, based on open license

Development of open-source software for state institutions, incl. national OS

Attempt to create a contemporary legislation, suitable for information era: No legacy – we can experiment Already passed legislation is very

advanced – we provide an alternative for innovators

Current IP rights legislation protects products – we focus on services

Utilize potential of an open license (GNU-like)

Set of laws: Amendments to current IP rights law

(Chapter IV of Civil Code) Establishment of National Data Bank of

Ideas and Technologies – will create secondary market of technologies and open state R&D institutions for market opportunities

Development of open-source software for state institutions, incl. national OS – will create a competitive market for software developers and put public funds to help the industry to grow

Publicly develop and submit into the Parliament a set of laws – Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies IP rights reform:

Establishment of National Data Bank of Ideas and Technologies

Alternative way to secure IP rights, based on open license

Development of open-source software for state institutions, incl. national OS

Venture capital law

Current legislation is very untraditional - VCs are recognized as mutual funds and regulated by FSFR (Russian counterpart of SEC): Excessive reporting unsuitable

for VC Licensing required Capital commitments are not

recognized Stock options are virtually

impossible Proposed changes:

Legalizing Limited Partnership as a separate legal form

Regulate rights of LPs and GPs Amend the JSC law to have all set

of tools – stock options, different shares, …

Publicly develop and submit into the Parliament a set of laws – the Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies IP rights reform:

Establishment of National Data Bank of Ideas and Technologies

Alternative way to secure IP rights, based on open license

Development of open-source software for state institutions, incl. national OS

Venture capital law Hi-Tech Parks law Legislation of electronic

documents and transactions: e-Document e-Commerce e-Government

Russia recognizes electronic signatures, but does not recognize electronic documents Recently Duma has to pass a

special regulation to allow e-tickets

e-Document law is a foundation for paperless workflow in the

government for e-commerce for Internet voting for other services conducted

through the Internet and e-government

Publicly develop and submit into the Parliament a set of laws – the Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies IP rights reform:

Establishment of National Data Bank of Ideas and Technologies

Alternative way to secure IP rights, based on open license

Development of open-source software for state institutions, incl. national OS

Venture capital law Hi-Tech Parks law Legislation of electronic documents and

transactions: e-Document e-Commerce e-Government Etc.

Single strategy at executive level – national Go.In.Ru initiative

Rethinking of GOELRO program of 1920-s – foundation of the national industrialization program

Set of state initiative targeted to support hi-tech industry through funding national-scale projects: Computers in every school –

done Internet in every village –

in progress Digital TV – in progress Supercomputing grid spread

from EC to China and Japan Space programs Fusion development National OS e-Government applications Radio frequencies conversion

Publicly develop and submit into the Parliament a set of laws – the Innovation Code

Self-governing bodies to acknowledge hi-tech companies

Special tax regime for hi-tech companies IP rights reform:

Establishment of National Data Bank of Ideas and Technologies

Alternative way to secure IP rights, based on open license

Development of open-source software for state institutions, incl. national OS

Venture capital law Hi-Tech Parks law Legislation of electronic documents and

transactions: e-Document e-Commerce e-Government

Etc. Single strategy at executive level – national

Go.In.Ru initiative

QUESTIONS?