On 1 January 2019 new rules regarding taxes that must be paid when selling Russian property went into effect. That’s the reason I decided to update this blog post. This article is a sequel to my blog posts about the second-hand real estate market and the one about acquiring Russian under construction properties.
What is the main change that came into force on 1 January 2019 regarding the sale of Russian real estate? The main change is that fiscal non-residents will no longer have to pay 30% Personal Income Tax (PIT) on the total amount for which they have sold their property if they have owned it for a minimum period. Usually this minimum period is 5 years.
From 1 January 2019 Russian law essentially treats fiscal residents and fiscal non-residents the same way if they sell their real estate after the minimum period of ownership. If they sell before this minimum period runs out, however, fiscal residents and fiscal non-residents are still treated differently.
On This Page
- Who is a fiscal resident of Russia?
- How much Personal Income Tax do residents and non-residents have to pay when selling real estate after 1 January 2019?
- What is the minimum period of ownership, after which one doesn’t owe PIT?
- How to calculate the period of ownership
- How can you prove that you’re a fiscal resident of Russia?
- Two Kinds of Tax Deductions Fiscal Residents can choose Between
- Fiscal Non-Residents Are Not Eligible for Tax Reductions
- How Not to Pay 30% PIT
- Don’t Try to Outsmart the System
- How can we help you?
Who is a fiscal resident of the Russian Federation?
Unless otherwise provided for by this Article, fiscal residents shall be individuals actually staying in the Russian Federation for at least 183 calendar days within a period of 12 consecutive months. If someone has to leave Russian territory to undergo medical treatment, for studying, as well as for the performance of labor or other duties related to the performance of labour at offshore oil and gas fields his factual absence will not be taken into account when determining his fiscal residency.Aricle. 207 paragraph 2 Russian tax code
According to article 207 par. 2 of the Russian Tax Code, a fiscal resident of Russia is ‘a natural person, who within the last 12 months has spent 183 days or more in Russia”. The citizenship of a person is of no importance here. What matters is actual presence. It is however, possible that in bilateral treaties different rules have been adopted (Article 7, paragraph 1).
The 12 month period referred to in this article does not have to coincide with the start of the calendar year; it can start to run at any time in principle. But for real estate deals, you have to be a fiscal resident within the period of one calendar year, in order to be able to use the above mentioned lower rate and possible benefits.
Besides the 183 days requirement, one’s stay in Russia also has to be lawful. One can not make use of the benefits of becoming a fiscal resident of the Russian Federation by overstaying one’s visa.
Does one have to stay in Russia 183 days uninterruptedly in order to be a fiscal resident?
No, in order determine whether someone is a fiscal resident of Russia or not one simply has to add up all the days the person was in Russia within a 1-year period..
How much Personal Income Tax do residents and non-residents have to pay when selling real estate after 1 January 2019?
Fiscal resident of Russia
Fiscal non-resident of Russia
Sale before minimum period runs out
13% PIT, but with a right to deduct the taxable sum with the amount for which they bought the apartment
30% PIT on the entire amount, no deduction possible!
Sale after minimum period of ownership
What are the minimum periods of ownership, after which one doesn’t have to pay Personal Income Tax upon selling?
The period of ownership is different depending on when and how one acquired ownership, as shown in the table below.
Real estate bought before 1 January 2016
Real estate bought on or after 1 January 2016
Real estate acquired through a gift, an inheritance from a close relative or a contract on the basis of which ownership was transferred and the new owner has to the support of the livelihood of the former owner
Non-real estate objects
How to Calculate the Period of Ownership
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This period of ownership should be calculated from the moment ownership was entered into the official register by Rosreestr, as apposed to the moment the contract to buy the apartment was concluded. There are 2 executions to this rule:
- If the object is acquired by way of inheritance, one should count from the day the testator passed away.
- If you’re dealing with a housing cooperation: from the moment the member of the cooperation has fully paid his contribution and acts of acceptance have been signed.
How can You Prove That You’re A Fiscal Resident of Russia?
It’s possible to request the Russian tax inspection to issue a document in which it confirms (or denies) your status as a fiscal resident of Russia. Russian Tax Authorities used to often ignore such requests for a confirmation of the status of a taxpayer, but since 1 July 2017, they are obliged to answer.
There is an official form to file a request to confirm your fiscal status.
Where should you file the application?
The application should be filed with the Interregional Inspectorate of the Federal Tax Service of Russia for Centralized Data Processing, which is located in Moscow. Fortunately for for those who are not in Moscow, it’s also possible to let someone else file the application for you or you can file an application electronically.
Actually you can also file the document by post, but I wouldn’t recommend you do that. Post often gets lost in Russia.
After filing the request, the tax inspection must issue the document with your fiscal status within 40 working days.
Two Kinds of Tax Deductions Fiscal Residents can choose Between
Besides the fact that they are paying 13% instead of 30%, fiscal residents of Russia are entitled to apply either one of the following methods in order to reduce their tax base.
- When selling an apartment, fiscal residents have a right to reduce their tax base with their yields, but to a maximum of 1 million rubles (art. 220, par. 2, sub 1 Russian Tax Code). If, for example, they sell an apartment for 3 million rubles and apply this method they will have to pay 260 thousand rubles Personal Income Tax (3 million, minus 1 million= 2 million x 13%.
- Yields minus Costs. According to this method, the yield from the sale of the apartment is subtracted with the price paid for it, when it was acquired ( documentation must be provided). For example, an apartment is sold for 3 million rubles and was bought for 2,5 million. Consequently, the tax base is 3 million, minus 2,5 million= 500 thousand rubles. And 13% of 0,5 million is 65 thousand rubles PIT. So, almost 200 thousand rubles less, even though the apartment was sold for the exact same price as in the above example.
Fiscal Non-Residents Are not Eligible for Tax Reductions
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If you are a fiscal non-resident of Russia, none of the above applies to you! You will have to pay 30% Personal Income Tax on the yield of the apartment, if you decide to sell before the minimum period of ownership has run out. If we take the same example of an apartment being sold for 3 million rubles, as a fiscal non-resident you will have to pay 900 thousand Rubles Personal Income Tax!
How Not to Pay 30% PIT
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In most cases, it’s no longer necessary to come back to Russia in order to become a fiscal resident before you sell your apartment. Nowadays, in most cases, the best way to avoid huge taxes is to wait until you have had ownership of the apartment for the mentioned minimum period.
If, however you are in a hurry to sell an expensive apartment in Russia, it may be worthwhile to become a tax resident. It’s recommended that you obtain a certificate of fiscal residence before the sale, so you don’t run into unpleasant surprises with the Russian Tax Office.
Alternatively, based on art. 217, par. 18.1 part 2 of the Russian Tax Code gifts between close family members (spouses, kids (natural and adopted children)) are not taxed. So, if you have a close family member who is a fiscal resident of Russia you can give him your real estate tax-free. He can then either sell it right away and pay 13%.
Don’t Try To Outsmart The System
The fiscal authorities are cracking down on this practice. According to new legislation, if a real estate estate object is sold for less than 70% of its cadastral value, the fiscal authorities will ‘correct’ the price in the contract up till 70% of the cadastral value. Additionally, they will probably impose a fine on you of about 20% of the difference between 70% of the cadastral value and the price according to the contract.
How Can We Help You
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Van Rhijn & Partners can advise you about various issues regarding the sale of Russian real estate.
If you spend more than 183 days a year in Russia and want to sell your apartment before the minimum period of ownership has ended we can assist you with obtaining a certificate of fiscal residence from the Federal Tax Service of Russia for Centralized Data Processing.
If you decide to sell your apartment before the minimum period of ownership has run out, you must file your tax declaration. Even in case, you don’t owe any taxes, you are obliged to do this. Van Rhijn & Partners can file the tax declaration for you and provide instructions on how to transfer the payment to the Russian Tax Office. The Latter is not always straightforward, especially if a payment is made from abroad.
So,if you need assistance with any of the above or have further questions,please contact us.
Ivo van Rhijn is a lawyer and a slavist. He specializes in consulting foreign individuals and companies in matters related to Russian law, in a broad sense.