Monopoly in Russian: collect real estate abroad, complete the “start” field, but don't receive rental income from foreign accounts or pay a fine.
Contents
The essence of the case
It was a decision by the Moscow Department of the Federal Tax Service to impose an administrative penalty in the form of a fine of 30% of the amount of payments received.
The Federal Tax Service believes that a foreign currency resident of the Russian Federation who rents out several commercial premises abroad is engaged in entrepreneurial activities, as he conducts activities “aimed at systematically making a profit”.
The Federal Tax Service equates this individual entrepreneur with a company in terms of currency control and, thus, refuses to apply to him the provisions of Part 5.2 of Article 12 of Law No. 173-FZ, which allows resident individuals to transfer funds from non-residents to accounts in foreign banks without restrictions.
And since, according to article 14, paragraph 2, of the Federal Law on Currency Regulation, companies are required to make payments when carrying out foreign exchange transactions through bank accounts opened with Russian banks, concludes that a tax and currency resident engaged in business activities violates currency legislation and should be punished accordingly.
First questions about the Federal Tax Service's statement
- The legislation of the Russian Federation defines an individual entrepreneur as a citizen engaged in entrepreneurial activities without forming a legal entity. That is, depending on the context, a person can be considered by law both as an entrepreneur and as an ordinary individual. However, individuals have never been equated with legal entities.
- There are also no indications of the application of requirements to individual entrepreneurs similar to those applicable to legal entities in currency legislation.
- In the current situation, it is not possible to organize the receipt of rent payments from tenants from Europe and the US to the accounts of Russian banks, which makes the Federal Tax Service's requirement unenforceable for individuals.
It is not known whether the fined person notified the Federal Tax Service about opening accounts in foreign banks and whether he reported on the flows of funds and other financial assets under these accounts.
Lawyer's opinion
- Equating citizens engaged in entrepreneurial activities with legal entities in the context of, in particular, currency legislation has no legal basis. Since Part 4 of Article 23 of Federal Law No. 173-FZ of December 10, 2003 “On Currency Regulation and Currency Control” states that individual entrepreneurs are individuals.
- Any irreparable doubts, contradictions and ambiguities of the currency legislation of the Russian Federation, acts of currency regulation authorities and acts of currency control authorities are interpreted in favor of residents and non-residents.
What should I do?
- It would be wise to consider using companies and agents authorized to manage overseas property.
- Or manage overseas real estate through your own foreign company, after receiving and receiving tax and legal advice in advance.
Concerns
If the practice takes root, activities “aimed at making a systematic profit” may include not only foreign real estate, but also, for example, deposits in foreign banks, securities, shares of foreign companies and other investment instruments.
C Cases will monitor the situation.