Trans-Siberian Gold plc
Contact Investor Relations Projects Company Home

Russia & Regional Information

Mining in Russia

Russia is the world's fifth largest gold producing country but has been regarded as an under-developed region for gold mining. Decades of state sponsored exploration identified much of the country's gold resources although until the late 1990's production was mainly limited to seasonal alluvial mining and was also constrained by a difficult regulatory environment and high taxation. Since 1998, the legal environment for operating gold mines in Russia has benefited from legislative and regulatory streamlining, the abolition of export duty on gold sales and a reduction in the rates of taxation and gold royalties.

Russian mining authorities

The Federal Ministry is the principal authority responsible for regulating the activities of the Russian mining sector. It grants (in conjunction with regional authorities) subsoil use licences and issues documents with respect to subsoil use procedures, controls the technical aspects of mineral deposit exploitation and determines the boundaries of mining allotments (which define the subsoil blocks from which natural resources forming the subject matter of any licence may be exclusively extracted). All activities of the State Mineral Reserves Commission, the Central Mineral Reserves Commission and the various territorial commissions conducting registration and expert examination of mineral reserves on behalf of the state fall within the jurisdiction of the Federal Ministry.

The State Mining and Industrial Inspectorate also plays an important part in the functioning of the Russian mining sector. Amongst other things, it issues instruments creating mining allocations and grants permits covering hazardous industrial production.

Regulatory and Environmental

The Group's operations are subject to various laws and governmental regulations in Russia including special legislation relating to environmental protection and employee health and safety. Accordingly, the Group is required to obtain regulatory approvals, licences, permits and consents from Russian federal and regional authorities.

Russian environmental laws govern, among other things, air emissions, waste water discharges, the use, handling and disposal of hazardous substances and waste, soil and, amongst other obligations, groundwater contamination and rehabilitation of mining areas on closure. These laws require the Group to perform ecological research and monitoring, to provide measures for environmental protection and to restore the area affected by its mining activities after use (in particular to re-soil the mining areas).

The Group has and will incur significant effort and expenditure to comply with environmental regulation. Furthermore, additional financial reserves or expenditure might be required to ensure compliance in the future due to changes in law, environmental conditions or other unforeseen events.

The operations of the Group's Russian subsidiaries are subject to Russian taxation in the form of corporate profits tax, VAT and mineral extraction tax.

Subject to certain exceptions (which include dividends), corporate profits are taxed at the standard fixed rate of 20%. Dividends are taxed at the standard rate of 9% if paid to Russian companies, but at 10%, in accordance with a bilateral tax treaty between the UK and Russia, where dividends are paid by a Russian subsidiary to a UK parent company.

Tax is not payable in Russia on the repayment of loans, or the payment of interest on those loans, by a Russian subsidiary to a UK parent company.

VAT in Russia is chargeable on:

(i) the supply of goods, works and services, as well as transfer of property rights in Russia.
(ii) the importation of goods into Russia.
(iii) the transfer of goods, works and services carried out by a company for its own needs in Russia.
(iv) building and assembly works provided for a company's own consumption.

In each case at the standard rate of 18 per cent. Subject to certain statutory exceptions, Russian companies generally have the right to reduce the aggregate amount of VAT payable on their output by the VAT already paid by them in relation to the goods, works and services acquired for further taxable activities as well as on the goods, works and services acquired for resale. Generally, if at the end of each tax period the aggregate amount of VAT reductions to which a company is entitled exceed the aggregate amount of VAT payable on its output, the difference may be recovered from the tax authorities by way of a VAT refund. Production of gold is a VAT exempted activity and therefore the Group receives regular reimbursement of VAT incurred.

Mineral extraction tax applies at a rate of 6 per cent ad valorem on all gold-containing concentrates and gold-intermediates produced by Russian companies in Russia.

All subsoil situated within the territory of Russia is deemed state property. The use of such property is controlled and regulated by a variety of state authorities through an intricate system of federal and regional licensing laws and regulations.