Moscow authorities have approved rules for grants to owners of commercial real estate in the capital
Pepeliaev Group advises that, on 13 May 2020, Resolution No. 574-PP of the Moscow Government[1] (the Resolution) was adopted which approves the procedure for grants from the budget of the city of Moscow to owners of commercial real estate that have decreased the rent rate for tenants in the conditions of the crisis because of the COVID-19 coronavirus.
In accordance with the Resolution the following Russian legal entities are entitled to claim grants aimed at compensating the amount of property taxes and land payments, as well as a decrease of rent:[2]
- owners of buildings, structures, premises which are used for the siting of retail outlets (including shopping malls and complexes), and catering facilities, facilities for providing household services and hotels;
- management companies of closed unit investment funds which contain real estate items, acting under a licence for performing activity for the management of investment funds, unit investment funds and private pension funds.
According to the Resolution the recipient of a grant must meet the following principal requirements:
- it must decrease rent payments under all lease (sublease) agreements entered into directly with tenants performing activity at the real estate item:[3]
- by at least double the amount of property tax and land tax (land rent) relating to the rented area of the real estate item; and
- by at least 50% of the previously existing amount of rent payments under a lease (sublease) agreement;
· it and/or a separate business unit of it must be registered as a taxpayer in Moscow;[4]
· it must not be undergoing reorganisation proceedings, a liquidation or bankruptcy, and its activity must not be suspended under the procedure provided for by the Russian Code of Administrative Offences;[5]
- it has not been held administratively liable for committing offences at the real estate item which are associated with non-compliance with the rules provided for in connection with the introduction and/or ensuring of the high-alert regime in Moscow;[6]
- more than 50% of its issued capital must not be owned by residents of offshore zones ‘blacklisted’ by the Russian Ministry of Finance.[7]
The Resolution also establishes a list of criteria which the real estate items must meet to receive the grant, including the following:[8]
· the real estate item must be classified as retail, catering facilities, facilities for providing household services based on the results of the last state cadastral valuation (or as a result of challenging the latest results of a determination of cadastral value);
- at least 80% of the area of the real estate item must be actually have been used for retail, catering facilities and/or facilities for providing household services as at 1 March 2020;
- the real estate item must not be an unauthorised construction;
- the types of permitted use of the land plot on which the real estate items located must provide for the possibility of siting such an item;
- the land legal relationships with respect to the land plot on which the real estate item is located must have been formalised according to the established procedure;
- ownership title or a right of trust management by the management company of the closed unit investment fund must have been registered with respect to the real estate item;[9]
- if the grant is claimed with respect to a hotel, then such hotel must have a certificate of a certain category assigned to it;[10] the certificate should be valid as at 1 April 2020.
The amount of a grant is determined by totalling two elements:
- the share of the total amount of property and land tax (rent[11]) related to the rented area of the corresponding real estate item;
- a half of the share of the total amount of property and land tax (rent[12]), related to the area of the corresponding real estate item used by the owner itself;
The total amount of tax (rent) is calculated as follows:
- for retail outlets – for the period from the first day of the month in which work on the real estate item was suspended according to Order No. 12-UM of the Moscow Mayor until 30 June 2020[13];
- for hotels - for Q2 2020.
Please note that the chosen method of providing support to owners of real estate items in the form of grants rather than in the form of a property/land tax benefit entails a risk that the amount of the grant received will be booked as non-sales income that is subject to profit tax. The specified grants do not fall within the grants provided for by article 251 of the Russian Tax Code as special-purpose financing and cannot be classified as benefits obtained from the federal budget in connection with the disadvantageous situation associated with the spread of the new coronavirus infection. In order to eliminate the above risk the Russian Tax Code needs to be amended by way of referring the amount of these grants to income not booked when calculating profit tax. |
To receive the grant the applicant needs to file an application and attach the documents specified in the appendix to the Resolution. The deadline and method of filing applications should be additionally approved by the Department for the Economic Policy and Development of the city of Moscow and published on the Investment portal of the city of Moscow investmoscow.ru.[14] It should be noted that as at the date of publication of this alert the above provisions necessary for making contact with an application to receive a grant pursuant to the Resolution have not been adopted.
What to think about and what to do
We recommend that the owners of real estate items specified in the Resolution should analyse the criteria contained in it. If they meet the specified criteria, we recommend considering the issue of applying for this grant once the Department for the Economic Policy and Development of the city of Moscow has approved the procedure and deadlines for filing the corresponding application.
If they do not meet the criteria specified in the Resolution, we recommend considering the possibility and reasonableness of ensuring compliance with the specified criteria so that they can subsequently receive the specified grant.
Help from your adviser
Pepeliaev Group’s specialists are ready to provide comprehensive legal support to owners of commercial real estate in Moscow with respect to all issues that may arise in connection with filing the application and with receiving the grant.
[1] Resolution No. 574-PP of the Moscow Government dated 13 May 2020 “On approving the Procedure of providing grants from the budget of the city of Moscow to legal entities in the period when the high-alert regime is in force”.
[2] Clause 1.2 of the Procedure for providing grants from the budget of the city of Moscow to legal entities in the period when the high-alert regime is in force, approved by the Resolution.
[3] Clauses 5.1.1 and 5.1.2 of the Procedure for providing grants from the budget of the city of Moscow to legal entities in the period when the high-alert regime is in force, approved by the Resolution (the Procedure).
[4] Clause 1.3.1 of the Procedure.
[5] Clause 1.3.2 of the Procedure.
[6] Clause 5.1.3 of the Procedure.
[7] Clause 1.3.3 of the Procedure. The list of countries and territories that provide a beneficial tax regime and/or do not provide for the disclosure and provision of information when performing financial transactions with regard to such legal entity, approved by Order No. 108n of the Russian Ministry of Finance dated 13 November 2007.
[8] Clauses 2.1 and 2.7 of the Procedure.
[9] Except for cases when the ownership title to real estate items do not require state registration since such title originated before Federal Law No. 122-FZ dated 21 July 1997 “On the state registration of title to real estate and transactions with it” came into force.
[10] The category of the hotel is assigned in accordance with the Regulations on the classification of hotels approved by Resolution No. 158 of the Government of the Russian Federation dated 16 February 2019 “On approving the Regulations on the classification of hotels”.
[11] For a land plot owned by the city of Moscow or state ownership of which has not been determined.
[12] For a land plot owned by the city of Moscow or state ownership of which has not been determined.
[13] If suspension of work on real estate items is completed after 1 July 2020 - until the last calendar day of the month in which the suspension of activity in completed on the item.
[14] Clause 3.2 of the Procedure.