What are the tax implications for foreigners owning property in Russia?

Tax implications for owning property in Russia

Owning property in Russia as a foreigner comes with specific tax obligations that are important to understand. These taxes vary based on the type of property, its usage (residential, commercial, or rental), and whether the property is sold. Below is an overview of the key tax implications for foreign property owners in Russia.

1. Property Tax

• Annual Property Tax: Foreign property owners in Russia are subject to an annual property tax, which is levied on the cadastral value of the property (the official value assessed by the Russian authorities). This tax applies to both residential and commercial properties.
  • Tax Rate: The property tax rate generally ranges from 0.1% to 0.3% of the cadastral value of the property, depending on the location and the type of property.
    • For residential properties, the rate is typically 0.1% of the cadastral value.
    • For commercial properties, the rate can range from 0.2% to 0.3%, depending on the region and property type.
• Cadastral Value: The cadastral value is usually lower than the market value of the property, but it can vary based on local property assessments. If you disagree with the cadastral value assigned to your property, you can request a revaluation or an appeal through the Russian Federal Service for State Registration, Cadastre, and Cartography (Rosreestr).
• Payment: Property taxes are typically paid annually, and the tax is assessed by the local municipality where the property is located. The tax amount is usually due in December for the current year, and payments are made to the local tax authorities.

2. Income Tax on Rental Income

If you decide to rent out your property in Russia, you are subject to income tax on the rental income you earn, whether you are a resident or non-resident.

• Tax Rate: The income tax rate on rental income is 13% for residents and 30% for non-residents.
  • Resident: A foreigner is considered a resident for tax purposes if they spend at least 183 days in Russia within a 12-month period.
  • Non-resident: Non-residents are taxed at the higher rate of 30% on their Russian income, including rental income.
• Deductions: You can claim certain expenses associated with property management as deductions to reduce your taxable income. These may include:
  • Maintenance costs (repairs, management fees, utilities, etc.)
  • Depreciation of the property (for commercial properties)
  • Property-related insurance
• Reporting and Payment: Rental income must be reported to the Russian Federal Tax Service. If you are a non-resident, you will need to file a tax return and pay taxes by April 30th of the following year, covering income earned in the previous year.

3. Capital Gains Tax

If you sell your property in Russia, you may be subject to capital gains tax on any profit earned from the sale.

• Tax Rate: The capital gains tax rate in Russia is 13% for residents and 30% for non-residents, just like the income tax rate for rental income.
  • The gain is calculated as the difference between the sale price and the purchase price, adjusted for certain allowable expenses like property improvements and commissions.
• Exemption for Residents: If you have owned the property for more than 5 years, you may qualify for an exemption from capital gains tax on the sale. This applies to properties that are your primary residence (i.e., the property in which you live for at least 183 days a year).
  • Non-residents do not qualify for this exemption and are taxed at the full rate of 30%.
• Losses: If you sell the property at a loss (the sale price is lower than the purchase price), you can carry forward the loss to offset gains in future years. However, this is generally not available for non-residents.

4. Value Added Tax (VAT)

• VAT on Property Sales: In Russia, newly constructed properties (i.e., from developers) are generally subject to VAT at a rate of 18%. This applies when buying a new apartment or property from a developer, not from an individual seller.
  • Second-hand property: When buying property from a private individual (not a developer), the sale is not subject to VAT. However, you may still be responsible for the property transfer tax (see below).

5. Property Transfer Tax

• State Duty: When you purchase property in Russia, you must pay the property transfer tax (also known as the state duty), which is typically 0.1% to 0.3% of the cadastral value of the property.
  • If you purchase property from a developer, VAT is applied instead of the property transfer tax.
• Who Pays: The property transfer tax is generally paid by the buyer, and it is payable at the time of registration of the property with the Russian Federal Service for State Registration (Rosreestr).

6. Inheritance and Estate Tax

• Inheritance Tax: There is no inheritance tax in Russia, but the property transfer tax may apply to the property being passed on.
  • If you inherit property, the value of the inherited property will be assessed for cadastral value, and the appropriate property tax or transfer tax may be applied to the new owner, whether they are a foreigner or not.
• Capital Gains Tax: If the inherited property is later sold, the new owner (whether a Russian citizen or a foreigner) may be liable for capital gains tax if there is a profit on the sale.

7. Tax Reporting and Filing

• Tax Filing for Foreign Owners: Foreign property owners are required to report their property-related income (such as rental income) and capital gains to the Russian Federal Tax Service. Failure to file taxes or report income can lead to penalties.
  • Foreigners who own property for personal use (and do not generate rental income) are typically not required to file income tax returns unless they sell the property and incur capital gains.
  • Tax Payment: Taxes such as property taxes and income taxes are generally paid to the local tax authorities or Federal Tax Service. Payments can typically be made online, via bank transfer, or at local tax offices.

8. Double Taxation Treaties

• Tax Treaties with Other Countries: Russia has double taxation treaties with many countries, including the US, the UK, and many EU countries. These treaties are designed to prevent double taxation on income earned in Russia and allow foreign property owners to claim tax relief on any taxes paid to Russia when filing taxes in their home country.
  • If you are a resident of a country with which Russia has a tax treaty, you may be able to offset some of your Russian tax liabilities with the taxes paid in your home country.

Conclusion

Foreigners who own property in Russia are subject to a range of taxes, including property tax, income tax on rental income, and capital gains tax upon selling the property. The tax rates are generally 13% for residents and 30% for non-residents. There are also property transfer taxes, which are relatively low, and VAT on new properties purchased from developers.

To avoid any tax complications, it’s important to work with a local tax advisor or real estate lawyer who is familiar with Russian property laws and tax regulations. Properly understanding and complying with these tax obligations will ensure that your property ownership in Russia is legally sound and financially efficient.