Purchase of real estate abroad by citizens of the Russian Federation: laws, rules, taxes

The legislation of the Russian Federation does not contain special restrictions on the rights of citizens of the Russian Federation and Russian legal entities to acquire and (or) own real estate abroad.

Common obstacles for a citizen of the Russian Federation may be a limitation of his legal capacity (for example, due to a mental disorder), and for a Russian legal entity - for example, the need to approve the purchase by shareholders if the acquisition of real estate will be a major transaction or an interested party transaction for him. Restrictions may also be provided in the company's charter or in the corporate agreement (shareholders' agreement/participants' agreement) [1] . Violation of such restrictions may lead to the recognition of the corresponding real estate acquisition transaction as invalid [2] .

In 2012, the legislator attempted to prohibit civil servants and members of their families from acquiring and owning real estate abroad [3] . However, this proposal was not implemented.

Currently, real estate (including foreign) acquired by officials (municipal and civil servants, some senior officials of the Central Bank and state corporations, financial commissioners, etc.), as well as their spouses or minor children, is subject to mandatory declaration [4] .

If the value of real estate, together with vehicles, securities, stocks/shares/shares purchased during the year, exceeds the total income of the official and his wife and minor children over the last three years, then the official is additionally required to provide information about expenses (including the acquisition of real estate and the sources of funds from which the purchase was made). This obligation also applies to former officials for six months from the date of dismissal from service [5] .

Also, since 2013, officials, their spouses and minor children have been prohibited from opening and having accounts in foreign banks, as well as owning and (or) using foreign financial instruments. Financial instruments include, among other things, securities (for example, shares of foreign companies), participation shares in foreign companies, loan agreements with non-residents of the Russian Federation. Failure to comply with this prohibition may, in particular, lead to early termination of the official’s powers [6] .

Please note that when purchasing real estate abroad, it is necessary to find out whether the laws of the relevant country provide restrictions on such acquisition.

For example, in some countries foreign citizens cannot buy real estate (most often land). However, such restrictions are often eliminated by establishing in the relevant state a foreign legal entity controlled by a Russian citizen. The ownership of real estate is registered in the name of such a legal entity.

We also recommend that investors who are citizens of the Russian Federation, before making a decision to invest funds, analyze the restrictions of Russian currency legislation in order to prevent the commission of an illegal currency transaction (for example, obtaining a loan for the purchase of foreign real estate to bank accounts located in countries that are not members of the OECD or FATF (such as Cyprus, Latvia, Lithuania, Malta, Monaco).

From a tax point of view, it is recommended to analyze in advance the pros and cons of structuring the ownership of foreign real estate - through an individual or legal entity - taking into account plans for the future use of real estate (for personal purposes or, for example, for rental), plans for further sale, inheritance, and so on.

A married individual must obtain a notarized consent of the spouse to purchase real estate [7] . And a legal entity may require appropriate corporate approval (for example, when purchasing real estate, when such a transaction will be large for the company) [8] .

The mere fact of acquisition by a Russian citizen (who is not an official) of real estate abroad does not give rise to an obligation to notify any government bodies .

It is necessary to keep in mind that if a tax resident of the Russian Federation establishes or acquires a legal entity in a foreign jurisdiction [9] , and also opens an account in a bank located outside the territory of the Russian Federation [10] (for example, for the purpose of transferring funds to the specified account), then in accordance with the requirements of the legislation of the Russian Federation, such a person has the obligation to submit a notification to the tax authority (at the place of residence - for an individual, at the location - for a legal entity).

A corresponding notification is submitted to the tax authority if the citizen’s share of participation in a foreign organization exceeds 10%. The submission period is no later than three months from the date of creation or change of the participation interest. In case of termination of participation, a corresponding notice must also be submitted within three months.

Only tax residents of the Russian Federation, that is, citizens staying in Russia for at least 183 days within 12 consecutive months, are required to submit such a notification. If an individual who was not a tax resident of Russia at the time the grounds for submitting the specified notification arose is recognized as a tax resident of Russia at the end of the calendar year, then the notification is submitted no later than March 1 of the year following the year of recognition as a tax resident of Russia.

It is necessary to submit if an individual (tax resident of the Russian Federation) is recognized as a controlling person, for example, if he owns more than 25% of shares/shares in a foreign company or owns more than 10% of shares/shares of a foreign company (together with his spouse and minor children) and at the same time the share of ownership of individuals - tax residents of the Russian Federation in this company is more than 50%. This rule also applies to foreign structures without the formation of a legal entity (funds, trusts, etc., hereinafter referred to as ISBOLE). In this case, the controlling person of the ISBOLE may also be its founder or the person exercising control over it.

The filing deadline is no later than March 20 of the year following the tax period in which the controlling person recognizes either income as a profit of a controlled company or a loss of a controlled foreign company. For example, if the calendar year for which the profit (loss) of a controlled foreign company is determined or its financial statements are prepared ends on December 31, 2017, then on December 31, 2018, a tax resident of the Russian Federation recognizes income in the form of profit of the controlled company, and the notification must be submitted no later than March 20, 2019).

It is also worth noting that in relation to the profits of a controlled foreign company / ISBOLE, an individual - a tax resident of the Russian Federation may be required to pay personal income tax to the Russian Federation - this point requires additional analysis in each specific case.

A resident of the Russian Federation is obliged to notify the tax authorities at the place of his registration (for an individual - at his place of residence, for a legal entity - at his location) about the opening (closing) of accounts (deposits) and about changes in the details of accounts (deposits) in a bank located abroad.

Moreover, a citizen who is a resident of the Russian Federation, who has opened an account outside the Russian Federation, is obliged annually before June 1 to submit to the tax authority (at his place of residence) a report on the movement of funds in the specified account [11] .

If the tax authorities were not notified of the opening of an account in a bank located outside the territory of the Russian Federation, or funds for the purchase of real estate were transferred in violation of the Law on Currency Regulation, such a payment may be recognized as an illegal currency transaction, and a fine of up to 3/4 of the entire transaction amount may be imposed on the payer - a resident of the Russian Federation [12] ;.

Citizens of the Russian Federation (currency residents of the Russian Federation) who have foreign accounts (deposits) are obliged annually, before June 1 of the year following the reporting year, to submit to the tax authorities at the place of their registration a report on the movement of funds on their foreign accounts (deposits).

For violation of the procedure for providing the above notifications and reports, the following fines are provided:

• Violation of filing a notice of participation in a foreign company – 50,000 rubles;
• Violation when filing a notification about a controlled foreign company – 100,000 rubles [13] ;
• Violation when submitting a notice of opening (closing) or changing the details of a bank account abroad – from 1000 to 1500 rubles if the submission deadlines are not met; from 4,000 to 50,000 rubles if information is not provided [14] ;
• Violation of the submission of a cash flow report on a bank account abroad - from 300 to 500 rubles if the submission deadline is not exceeded by ten days; up to 2500-3000 rubles if the submission deadline is missed by more than 30 days; for repeated violation – 20,000 rubles [15] .

However, if in the next calendar year the period of stay of such residents of the Russian Federation abroad is less than 183 calendar days, notifications about the opening (change of details, closure) of accounts, as well as reports on the flow of funds on them, will need to be submitted to the tax authorities before June 1 of the year following the expiration.

Transferring funds abroad to purchase real estate can be done in the following ways:

1. transfer as payment under the sales contract to the account of the real estate seller;
2. transfer to your account in a foreign bank.

When a citizen of the Russian Federation (resident) transfers funds under a real estate purchase and sale agreement from his account opened in a Russian bank (both in Russian currency and in foreign currency) in favor of a non-resident seller, the servicing bank, as a currency control agent, has the right to request a number of documents from the buyer. Among them are the documents necessary to identify the payer and confirm his resident status, as well as to verify the economic justification of the payment (in particular, a real estate purchase and sale agreement with a non-resident seller, which is the basis for the transfer of funds) [16] . In addition, the servicing bank has the right to request from the client documents confirming the sources of origin of funds [17] .

When transferring to your own account in a bank located outside of Russia, there is a need to notify the tax authorities of the Russian Federation about the opening (closing) of the account, changes in details and the movement of funds through it.

The legislation of the Russian Federation provides a closed list of grounds on which funds can be credited to a resident’s foreign account. Acceptable are the transfer by a resident of funds from his Russian account to a foreign one [18] and the receipt of funds from non-residents as part of individual transactions (for example, income from the rental of foreign property [19] ).

It is not advisable to pay for purchased foreign real estate in cash for two reasons.

Firstly, the legislation of many foreign countries, in order to combat money laundering, significantly limits cash payments (especially when the payment amount is significant).

Secondly, when exporting Russian currency and foreign currency from the Russian Federation and its subsequent import into the territory of a foreign state, it may be necessary to fill out a customs declaration and confirm the source of origin of the funds.

Cash, which is rent for real estate abroad, can be received by the landlord, a resident of the Russian Federation, into a foreign currency account in an authorized Russian bank.

However, if a resident of the Russian Federation wishes to receive such funds into his account in a bank in the country in which the property is being rented out, then the legality of such an operation depends on the country in which the property is being rented out.

Согласно действующему законодательству резиденты РФ могут получать денежные средства в качестве дохода от аренды на свои счета в иностранных банках только в том случае, если такие банки расположены в странах – членах ФАТФ и ОЭСР [20] . Такими странами, например, являются Великобритания, Германия, Италия, Люксембург.

Таким образом, если объект недвижимости находится и сдаётся в аренду на территории Республики Кипр, которая не является членом ФАТФ и ОЭСР, а арендатор или арендодатель не желает сотрудничать с российским банком, то можно осуществить перевод денежных средств на валютный счёт (при его наличии) арендодателя в банке, расположенном на территории, например, Германии.

Доход российского налогового резидента от сдачи в аренду зарубежной недвижимости считается доходом для целей налогообложения в РФ и облагается НДФЛ по ставке 13%. В то же время такой доход может подлежать налогообложению и на территории иностранного государства, где расположена недвижимость.

Соглашения об избежании двойного налогообложения между РФ и страной, где находится недвижимость, могут помочь избежать повторного налогообложения дохода от аренды в РФ.

Резидент РФ имеет право зачислять денежные средства от продажи имущества (в том числе недвижимости) на свои зарубежные банковские счета, минуя уполномоченные российские банки. Однако данное правило действует только в том случае, если недвижимость находится на территории государства – члена ОЭСР или ФАТФ и такое иностранное государство присоединилось к многостороннему Соглашению компетентных органов об автоматическом обмене финансовой информацией от 29 октября 2014 года или имеет с Российской Федерацией действующее двустороннее международное соглашение, предусматривающее автоматический обмен финансовой информацией. [21] . При этом счёт, на который поступят средства в качестве оплаты по договору купли-продажи недвижимости, должен быть открыт в банке страны нахождения такой недвижимости.