Putin Declares Islands Disputed With Japan as Tax-Free Zone

(Bloomberg) -- President Vladimir Putin said Russia is setting up a tax-free zone to attract investment to four islands at the center of a decades-long territorial dispute with Japan.

“We are creating an unprecedented set of benefits and incentives on the Kuril Islands, where we will completely exempt businesses from paying any taxes on profits, property, land and transport taxes, and for 10 years,” Putin said Friday at the annual Eastern Economic Forum in the Pacific port city of Vladivostok. 

The incentives will be available to Russian and foreign investors “including our Japanese partners,” Putin said.

His announcement deals a further blow to Japanese hopes of reclaiming islands seized by the Soviet Union at the end of World War II that are known as the South Kurils in Russia and the Northern Territories in Japan. 

Putin and former Japanese Prime Minister Shinzo Abe met 25 times between 2012 and the latter’s resignation last year to try to resolve the territorial dispute, without success.

The issue has prevented the two sides from signing a peace treaty formally ending the war. Putin said Russia remains ready for dialogue on a peace accord, but he accused Japan of repeatedly changing its negotiating position on the islands. 

The Kremlin has offered to negotiate on the basis of a 1956 declaration under which the Soviet Union would return two of four islands following a peace accord, but last year the Russian parliament backed a tougher stance on any territorial concessions. Changes to the Russian constitution last year also made it illegal to hand over any part of Russia.

Deputy Prime Minister and Kremlin envoy to the Far Eastern Federal District Yury Trutnev last month announced a five-year development plan in the far-flung archipelago. The goal of the program is put to rest any remaining doubts about Russia’s control of the Kurils, he said.

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