Global Tax Alert | 15 November 2013

Russia enacts use of cadastral value of real estate for calculation of corporate property tax base

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On 2 November 2013, Russia enacted Law No.307-FZ “Concerning the Use of the Cadastral Value of Real Estate for the Calculation of the Corporate Property Tax Base.” The law was published on 6 November 2013 and applies as of 1 January 2014.

What’s new?

The Law provides that as of 1 January 2014, the cadastral value of real estate will be the tax base for property tax on the following types of property:

  • Administrative-business centers, shopping centers and premises in such buildings;
  • Non-residential premises used as offices, shops, catering services, and to provide consumer services, or intended for such usage; and
  • Any property owned by foreign companies operating without a permanent establishment in Russia or not allocated by the foreign company to a permanent establishment.

Regional legislation should be amended to make a change effective due to a regional nature of the property tax. The list of property subject to tax on the cadastral value is to be determined and published on the internet by the authorized executive government body of the relevant Russian region.

Under the draft adopted in the first reading, the amendments were not to take effect until 1 January 2020 for Russian companies. The amended Law is to apply to both Russian and foreign companies from as of 2014.

The maximum tax rate is to be set at the following level:

  • For Moscow: in 2014 –1.5%; in 2015 – 1.7%; in 2016 and subsequent years – 2%;
  • For other regions of the Russian Federation: in 2014 – 1.0%; in 2015 – 1.5%; in 2016 and subsequent years – 2%.

Impact

Due to the enactment of this Law, there will be a substantial increase of the property tax burden for commercial real estate companies that own the above-listed property with high cadastral value, as well as to foreign companies owning real estate in the Russian Federation and not operating real estate property through a permanent establishment.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (CIS) B.V. branch in Moscow
  • Olga Arkhangelskaya
    +7 495 755 9854
    olga.arkhangelskaya@ru.ey.com
  • Yulia Timonina
    +7 495 755 9838
    yulia.timonina@ru.ey.com
  • Svetlana Zobnina
    +7 495 641 2930
    svetlana.zobnina@ru.ey.com
  • Anna Strelnichenko
    +7 495 705 9744
    anna.strelnichenko@ru.ey.com
  • Eugene Bondarchuk
    +7 495 755 9700
    eugene.bondarchuk@ru.ey.com
Ernst & Young LLP, Russian Tax Desk, New York
  • Julia Samoletova
    +1 212 773 8088
    julia.samoletova@ey.com

EYG no. CM3966