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Recent Changes and Tax Planning Considerations in Real Estate Transactions Scott Antel, Partner AmCham Tax Seminar 23 October 2005. VAT Changes. Self Construction Current Rule: - Self assess output VAT when placed in service - Offset input VAT when paid

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VAT Changes


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Recent Changes and Tax Planning Considerations in Real Estate TransactionsScott Antel, PartnerAmCham Tax Seminar23 October 2005

vat changes
VAT Changes
  • Self Construction

Current Rule:

-Self assess output VAT when placed in service

- Offset input VAT when paid

Rule for 2006:

- Self asses output VAT on last day of tax period

- Offset input VAT when booked in accounts

  • Capital Construction

Current Rule: Offset VAT only when building placed in service

Rule for 2006: Offset when booked in the accounts

Possibility to offset prior incurred, but not offset, VAT

vat changes reinstatement of vat on capital projects and real property
VAT Changes. Reinstatement of VAT on Capital Projects and Real Property
  • Previously offset VAT reinstated in case of exempt operations(Except for: Fully depreciated properties and properties commissioned more than 15 years ago)
  • VAT reinstated for 10 years after the property is commissioned
  • VAT reinstated in the last tax period for each year
  • VAT reinstated annually is equal to 1/10 of the portion of the offset VAT multiplied by the ratio of exempt operations to the total sales in the respective calendar year
profit tax changes
Profit TaxChanges
  • Capital expenditures 10 % immediate write-off
  • Leasehold capital improvements depreciated by:

- Lessor if lessee reimbursed

- Lessee if not reimbursed

  • Charter contributions recorded at tax basis of contributor and valuation requirement (effective now).
land tax
Land Tax
  • Tax base moves from local formula to cadastral value
  • Tax rate: maximum 1.5 %
  • Effective from when localities adopt Land Tax Law and enact cadastral plan
acquisition case study

Acquisition Case Study

DLA MW Limited. Partner Scott Antel

asset onshore
Asset Onshore
  • Issues:
  • Seller
  • Gain recognized in Russia.
  • Buyer
  • No historical entity risk.
  • Increased tax basis.
  • Recovery of VAT.
  • Operating concerns-licenses.
  • Migration of local I.P.
  • Preference of Buyer.

Sale I.P. Intangibles

Abroad

Russia

Russian S/H2

Assets

Sale

share acquisition from offshore
Share Acquisition from Offshore

Russian S/H

  • Issues:
  • Seller
  • Russian S/H gain offshore.
  • Real property holding co. capital gain.
  • Buyer
  • Tax/other history of new OPCO.
  • Inherit low asset basis.
  • Migration of local I.P.
  • Operating concerns-licenses.

Sale I.P.

Intangibles

Abroad

Russia

Hotel Assets

Russian S/H

3) Purchase of New Co. (or Offshore Hold Co.)

1) Asset sale or contribution by Hotel OPCO to New Co.

2) Sale of new Co.

post acquisition structuring
Post Acquisition Structuring
  • Owner Issues:
  • Financing renovations/ improvements:
  • - Loans up to 15%;
  • - Leasing (3x depreciation);
  • - CIK (VAT/customs exempt);
  • Merger of multiple entities if any.
  • Buy out of land.

Abroad

Russia

operation and repatriation
Operation and Repatriation
  • Owner Issues:
  • Tax effective repatriation:
  • - Loan @ 0%;
  • - License fees @ 0%;
  • - Offshore services (res. and mktg.) @ 0%;
  • - Dividends @ 5-15%;
  • Non-Russian tax planning:
  • - Holding company jurisdiction taxes;
  • - Home country CFC rules, etc.;

Abroad

Russia