RS Q & A Taxation of real estate sales

Taxation of real estate sales

A foreign company (Cyprus) sells a registered and built residential house with the lot it is located on to a natural person who is a Russian resident. The representative office of the foreign company that conducts auxiliary operations in Russia is located separately from the real property being sold. The natural person, the house is sold to, is not registered as a sole proprietor and directly enters into a purchase and sale contract with the foreign company.
What taxes does the foreign company have to pay on the sale of the house and land?
Which country do the taxes have to be paid in?
Does the purchaser in this transaction have to pay any taxes and submit any documents to the taxation service or other state agencies?

In the opinion of the experts, in this situation the actions of the foreign company in this case obligate its representative office to pay taxes in Russia.

Taxation of foreign companies is based not only on the tax code of the Russian Federation but also on international agreements that Russia signed. The Russian Federation and the Republic of Cyprus have an agreement dated December 5, 1998 to avoid double taxation of income and capital. Under this agreement any revenue that a foreign company registered in Cyprus receives from selling real property in Russia is to be taxed at 20% in Russia.

The natural person who buys the property cannot be required to act as a taxation agent and thus the foreign company must calculate and pay the tax on its own. It must also submit a tax declaration to the taxation authority it is registered with (the one that has jurisdiction over the territory where the real property is located).

No VAT is charged on the sale of residential houses and land.

Prepared by experts of the GARANT Legal Consulting Service
For detailed explanations of the reply, please, contact the authors