Immovable property tax is to be introduced in Russia prior to January 1, 2018

Pursuant to the Russian Government's draft amendments to the draft federal law No. 51763-4 "On the Amendments to the Second Part of the Tax Code of the Russian Federation and Certain Legal Acts of the Russian Federation", which was posted on the ‘Official Information' page of the Ministry of Finance of Russia official website on 23.04.2013 , a immovable property tax (hereinafter the "immovable property tax") is to be introduced in the Russian Federation prior to January 1, 2018.

The immovable property tax will be gradually introduced within a period of 2014 and 2017 by municipalities, federal cities of Moscow and St. Petersburg as they are ready for it.

Under the draft amendments the immovable property tax is to be imposed on physical bodies entitled to ownership of buildings, facilities, structures, residential and non-residential premises, fixed assets under construction, as well as physical bodies entitled to perpetual use or lifetime ownership of land with hereditary succession. Thus, this version of the draft ‘Immovable Property Tax' Chapter of the Tax Code of the Russian Federation defines the immovable property tax as local tax on physical bodies, including both residential and non-residential property, fixed assets under construction.


Though it has long been planned to introduce immovable property tax in the Russian Federation, no such tax has been introduced in Russia to date, save for a pilot project under which immovable property tax was imposed on legal entities in the city of Veliky Novgorod. The introduction of immovable property tax is not going to slow down economic growth, creates a legal base for compliance with social obligations, constitutes a step towards a more fair immovable property taxation procedure, thereby being an absolutely positive measure.


It should be noted that though many disputable issues of the previous drafts of the respective chapter of the Tax Code have been solved here, some of the issues should be studied further.


The Russian Federation is a social state, where certain categories of persons receive government support. Under the draft amendments, the taxable base for a residential property is to be reduced by a cadastral value of 20 sq. meters of a taxed item's total floor space, irrespective of both the number of owners of such residential property and whether they fall or not under the category of persons entitled to benefits. No other tax benefits are provided for by the draft amendments. Though additional tax benefits may be established at the local level, it is obvious that not all of the municipal representative bodies will be able to afford such benefits, in which case the poorer is municipality, the less extra benefits can it offer. A social protection mechanism should be envisaged for at least disabled and elder persons, e.g., by exempting them under the Tax Code's respective chapter from immovable property tax on a single residential property in which they officially reside.


The draft amendments establish different tax rates on residential and non-residential premises, with a total cadastral value of taxable items being Rb 300m or less: a tax rate of 0.1% on residential premises , a minimal tax rate of 0.5% on non-residential premises. Residential premises are subject to a 0.5 tax rate if total cadastral value of taxable items is more than Rb 300m. Tax rates of 0.5% to 1% are to be established at the local level if cadastral value of each of the potential taxable items, save for land plots, in particular residential or non-residential premises, is more than Rb 300m. Though different tax rates on residential and non-residential premises are economically effective and stand to reason, there is a disputable issue of whether or not the value of both residential and non-residential premises should be included into total cadastral value of taxable items in estimating a tax rate for residential premises.


In addition, the draft amendments' provisions concerning representation of total cadastral value of items as a sum of cadastral value of all taxable items across the Russian Federation, as well as taxation of fixed assets under construction seem to be impracticable, because tax authorities lack relevant information. At present, Russian tax authorities have no single database on taxpayers and immovable property items they own, and the title to fixed assets under construction is normally not registered, except when such assets are sold or pledged.


Velikova E.E. - a senior researcher of Tax System Development Department