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A foreign firm (Great Britain, Malta and Cyprus) acts as a lessor in the Russian Federation. What tax burden is borne by the company?

Provided that the foreign firm transfers the property for lease having the rights of the owner, certain conditions exist that require the fulfillment of tax obligations. Let's try to consider this issue.

1. Tax liabilities from the leasing of property (income tax)

Article 246 of the Tax Code of Russia prescribes that "foreign firms operating in the Russian Federation and using permanent representative offices and (or) those who receive income from various sources in Russia are recognized as payers of income tax".

Clause 2 of Article 306 of the RF Tax Code states that the law prescribes the establishment of the following requirements for the forming a permanent representative office:

  • the presence of a separate unit/branch or some place where the activity of a foreign organization is conducted in the territory of Russia;
  • the entrepreneurial activity of a foreign firm in the territory of the Russian Federation;
  • carrying out systematic activities.

If the above characteristics take place, the operation of a foreign firm in the Russian Federation is recognized as a permanent establishment (representative office). Supervisory bodies over the activities of such companies believe that letting of real estate can be considered as the establishment of a permanent office when a systematic component is used (Letter of the Moscow Department of the RF Federal Tax Service of 19.01.2007, 20-12 / 05685, Order of the Ministry of Taxation of the RF BG-3 -23/150 of 28.03.2003)

Suppose that clause 2.4.1 of the Order of the Ministry of Taxation of the Russian Federation No. BG-3-23 / 150 of 28.03.2003 provides for the fact that foreign owners of real estate on the territory of the Russian Federation do not have grounds for considering it as a permanent establishment (paragraph 5 of Article 306 of the Code), but active operation and activities with property for commercial purposes give reasons to believe that there is a need to create a permanent representation of a foreign organization.

In the event that a foreign firm systematically transfers the property belonging to it to the lessee, while doing a search for clients, concluding lease contracts, as well as contracts for the repair of the premises and keeping it in good condition, etc., therefore, such actions of a foreign firm can give grounds for establishing a permanent representation in the Russian Federation.

In view of the foregoing, if the real estate is transferred to the lessee for a long period of time with a monthly payment, the tax structures may consider the activities of the foreign firm as an existing permanent establishment in the territory of the Russian Federation. From the above, it follows that claims for tax payments, as well as VAT, are transferred to a foreign organization.

It should be borne in mind that in the event that the property is leased irregularly, the company's activities can not be taken into account as entrepreneurial ones. Then all tax liabilities are transferred to the lessee, who is recognized as a tax resident.

If a foreign organization has doubts about the formation of a permanent representative office when letting the real estate, it may send a letter with the request to the tax authorities in order to obtain information. Responding to the request, tax structures issue a document stating either the recognition of the company as the permanent establishment or the notification that the company's activities can not lead to the formation of such representation.

The documents must be issued within the time limits specified by law, but not more than 30 calendar days from the date of receipt of the request.

Taxes that come from income from letting or subletting real estate by a foreign organization constitute 20% of the tax rate on the basis of clauses 1,2 of Article 284 and clause 4 of paragraph 1 of Article 310 of the Tax Code of Russia.

It is necessary to take into account Article 7 of the Tax Code of the Russian Federation which state that if the international treaties of the Russian Federation, which contain provisions on taxation and fees, stipulate other norms and rules different from the Tax Code of the Russian Federation and are approved by regulatory legal acts of taxes and fees, then the norms and rules of international agreements of Russia apply.

There is no signed treaty on avoidance of double taxation between Russia and Malta.

The Convention between the Government of the Russian Federation and the Government of Great Britain and Northern Ireland of 15.02.1994 "On Avoiding Double Taxation and Preventing Evasion from Taxation with Respect to Taxes on Incomes and Increase in the Value of Property", in article 6, paragraph 1, prescribes that the income received by a person with a permanent location in one of the Contracting States from the leasing of immovable property located in another state, as agreed, may apply taxation in this state.

The provisions of the above article can be applied to those revenues that are obtained from the direct use of property, lease or use it in some other form.

Similar agreement was signed between the Government of the Russian Federation and the Government of the Republic of Cyprus.

Article 6 of the Agreement prescribes the conditions under which incomes received in another state are obliged to be taxed. Such a requirement is applicable to income received from the direct letting of property, subletting, or using it in another form.

Based on the above, it becomes evident that the leased property on the territory of the Russian Federation leads to and constitutes an active entrepreneurial activity, which entails the establishment of a permanent representation and is certainly subject to taxation in accordance with the procedure established by law.

2. Obligation to pay VAT

Foreign companies are taxpayers of VAT in accordance with clause 1 of Article 143 of the Tax Code of the Russian Federation. Clause 2 of Article 144 of this Code prescribes that foreign organizations are entitled to register in tax structures as taxpayers according to the location of their permanent representative offices in Russia.

Foreign company may become registered on the basis of an application to the tax authorities in writing. Article 148 of the Tax Code of Russia provides that the territory of the Russian Federation is recognized as the place of sale of services (works), if these actions are related to real estate located on the territory of Russia. All transactions that may be related to the provision of services for letting the real estate in Russia by a foreign organization are subject to mandatory VAT taxation in accordance with the procedure established by the legislation of the Russian Federation.

In the event that a foreign company is not registered as a VAT payer, the tax must be withheld from the Russian lessee, who is in this case a tax agent (paragraph 1.2 of Article 161, paragraph 4 of Article 164 of the Tax Code of the Russian Federation).

3. Obligations to pay tax on property of a foreign company.

Acquiring property in Russia, a foreign organization automatically becomes a payer of property taxes and must register with the tax authority at the location of the property. If a permanent establishment of a foreign organization is located in the territory of the Russian Federation, it becomes a payer of property taxes, in accordance with Article 373 of the Tax Code of the Russian Federation. The property tax in such cases is to be calculated in the same way as for Russian companies.

Objects that are the company's main assets (Article 374, paragraph 2 of the Tax Code of the Russian Federation) are subject to the tax on real estate. If the foreign organization does not have a permanent representative office in Russia, it is still a payer of the property tax, but in this case only the property that is owned by the company is subject to taxation according to Article 374.3 of the Tax Code of the Russian Federation.