New order of the Federal Tax Service of the Russian Federation: how have the rules changed for owners of foreign real estate and receipt of income?

If your portfolio of investment assets includes real estate located outside of Russia, then from December 31, 2024 there is a risk that the crediting of funds received from its lease or sale may be prohibited. To understand the details of the new legislation, we turned to legal experts: which countries are covered by the new bill, how will the rules change for those who are not tax residents of the Russian Federation, and what steps should be taken by real estate owners whose income falls under the new restrictions?

What changes have taken place in terms of legislation?

Automatic exchange of tax information was introduced as a tool to simplify the reporting of financial flows and to enhance the ability to credit funds to accounts abroad. However, starting from 2023, European Union countries have started to gradually introduce restrictions on cooperation within this system.

According to Article 12 of the Federal Law "On Currency Regulation and Currency Control", crediting of funds to bank accounts in countries that do not participate in the automatic exchange of tax information is possible only on strictly defined grounds.

At the moment it has become known what is prohibited:

• Transfer of funds received from the sale of real estate abroad;
• Receipt of income from renting out foreign real estate.

In addition, the restrictions apply to any other transfers in foreign currency to accounts held in European banks. Examples of such credits are:

• Funds from the sale of shares or other securities;
• Loans and credits obtained abroad;
• Payments in the form of dividends or coupon income on securities.

If funds are credited to accounts in countries excluded from the white list, the tax authorities may impose a fine of 20-40% of the transaction amount. It is important to realize that the automatic exchange of information is not the only way in which the tax authorities can obtain data on the foreign assets of Russian citizens. Inspectors of the Federal Tax Service have the right to send requests to foreign jurisdictions to obtain information about specific individuals.

Why is this important for owners of foreign real estate?

For citizens of the Russian Federation, income from foreign sources credited to accounts in countries excluded from the white list becomes unavailable from the point of view of the law. This rule affects both income from renting out real estate and funds from its sale. For example, if you are a citizen of the Russian Federation or have a residence permit and spend most of your time in the country (more than 183 days a year), you will not be able to sell an apartment in one of the countries of Western Europe and transfer the proceeds to an account in the same country.

Which countries are excluded from the list of jurisdictions with which there was an automatic exchange?

Since December 31, the Federal Tax Service of the Russian Federation excludes all states of the European Union from the white list. This means that receiving income from the sale or lease of real estate in these countries will no longer be considered legal.

Specifically, 26 jurisdictions are excluded from the list, including Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Spain. The EU is completely withdrawing from the whitelist, with the exception of Lithuania, which was excluded earlier.

However, new countries such as Armenia, Cameroon, Rwanda, Jamaica, Rwanda and Niue will be added to the whitelist. Of the European countries, only Andorra, Albania, Iceland, Liechtenstein, Monaco, Norway, San Marino, Gibraltar and the Faroe Islands remain in the automatic exchange system.

What should account holders in non-EU and EAEU countries do?

If your account is opened in a bank located in Turkey, you should not worry - deposits to such accounts remain authorized. But the situation with Thailand is more complicated: this country is not included in the white list, so you should carefully follow the current changes in legislation.

The reduction of the white list of countries with which Russia exchanges financial information may indicate further tightening of control over foreign accounts of Russian tax residents. Perhaps in the future, other countries that do not yet participate in automatic exchange, such as Thailand, will be added to the white list, especially given its popularity among Russian real estate investors.

Can a second citizenship or residence permit of another country help?

Russian currency legislation applies to anyone with a Russian passport or residence permit, regardless of whether they have a second citizenship or other documents. This means that if a property owner has a residence permit from another country but spends more than 183 days a year in Russia, funds from the sale or rental of their property in the EU still cannot be deposited into a foreign account.

After losing the status of a tax resident of the Russian Federation, restrictions on transactions with foreign currency accounts are removed. In such a case, non-residents are exempt from reporting obligations on the movement of funds on foreign accounts and from requirements related to controlled foreign companies (CFCs). However, when returning to Russia and staying in the country for more than 183 days within 12 months, a person again becomes a tax resident and must comply with all currency and tax law requirements.

Do these restrictions apply to tax non-residents of the Russian Federation?

The restrictions apply only to tax residents of the Russian Federation with Russian citizenship or residence permit who spend more than 183 days in the country per year. If the owner of foreign real estate is in Russia for less than this period, he loses the status of a tax resident, which means that he can continue to receive income to his foreign accounts without restrictions.

What should you do if your real estate income goes to an account in an "unfriendly" country?

• Get a special status of a currency resident of the Russian Federation If you spend a limited amount of time in Russia, then after 183 days abroad, the legal requirements become less strict.
• Use accounts in auto-exchange or EAEU countries Transfer money to EAEU countries (Belarus, Kyrgyzstan, Armenia, Kazakhstan), where restrictions do not apply. You can also open an account in a white-listed country, such as the UAE, Singapore or Oman.
• Transferfunds toRussia within the established deadline Transfer money to an account in an authorized Russian bank within 45 days to avoid administrative liability.

What remains authorized?

Foreign accounts in EU countries can still be credited:

- Interest on account balances; - Wages; - Inheritance; - Transfers from authorized Russian banks; - Funds between own accounts or accounts of close relatives.

What are the prospects?

At the moment, the practice of applying the new rules has not yet developed. The exact scheme of operation of the point-to-point exchange of information remains in question. However, there is a possibility that countries popular among Russian investors will soon start participating in automatic exchange with Russia. It is recommended to regularly follow legislative changes and expert advice.