RS Q & A Gratuitous Transfer of Real Estate Items

Gratuitous Transfer of Real Estate Items

A foreign company gratuitously transfers (in compliance with contract obligations) a plot of land together with the real estate item (a factory) situated on it to the Moscow Government.
What tax obligations arise when concluding such a land transaction? When will the organisation no longer have to pay land tax?

In compliance with the Civil Code of the Russian Federation ownership rights and other proprietary rights to immovable things, the limitations of such rights, their creation, transfer and termination are subject to state registration in the unified state register by authorities conducting the state registration of real estate rights and transactions therewith. Therefore, real estate property rights based on the contract can only be transferred to your organisation from the Moscow Government after the contract has undergone the state registration. A certificate of the state registration of rights can serve as a documented confirmation of the state registration for the right creation and transfer.

VAT. In accordance with the Tax Code of the Russian Federation (Article 146), the gratuitous transfer of fixed assets to public control and administration authorities and local government bodies, along with state and municipal institutions, state and municipal unitary enterprises is not recognised as an item subject to VAT.

Profit tax. Upon the gratuitous transfer of property, in the case at hand—a plot of land, the tax payer (the foreign company) does not obtain an economic gain, therefore it does not receive income taken into account for profit tax purposes. Expenses in the form of the cost of the gratuitously transferred property also are not accounted for as part of the taxpayer’s expenses.

Land tax. It is no longer obligatory to pay the land tax as soon as the registration entry about the Moscow Government’s right to this land plot is introduced into the register.

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