Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Foreigners' 'Flat Tax' Called Easy to Evade

Foreigners and other non-Muscovites who are the target of a controversial proposed tax on apartment purchases are likely to be able to find ways to evade the levy, real estate officials said Friday.

"I would be very much surprised if some foreign buyer paid this tax," said Philip Bogdanoff, commercial property director at the real estate firm Oster & Co. For foreigners, the tax is to be set at the equivalent of 5,000 times the minimum wage, currently 102.5 million rubles ($44,500); for Russians without a Moscow propiska, the tax would be 500 times the minimum wage, about $4,450.

Bogdanoff said foreign buyers would probably ask their Moscow partners and friends, exempted from the tax, to strike deals for them.

He said it is already a common practice in Moscow, where foreigners pay a much higher purchase registration fee.

For Russians without a residency permit in Moscow, it would be even easier to get around the controversial regulation, as they can get a propiska through a fictitious marriage with a Muscovite, said Vladimir Krasnoslobodtsev, sales manager at the Russian real estate firm Vavilon.

"It is not all that difficult to avoid paying this fee," he said.

The Moscow City Duma approved the tax this week and the regulation is expected to gain final approval of Moscow Mayor Yury Luzhkov by the end of the month.

A Moscow-based foreign correspondent, who planned to spend about $150,000 on an apartment this month, was furious Thursday as he learned about the measure, which is said to be designed to "compensate the city" for expenses in developing Moscow's infrastructure.

"It's unbelievable and it's very annoying," he said, adding that he may now drop the idea of buying the flat. "It'll kill the market."

"It's robbery," agreed Bogdanoff of Oster & Co.

"Fifty thousand dollars makes a difference in the price of a flat in the center Moscow and in the suburbs, and it's a lot of money for everyone," he said, adding that the tax may scare away some potential buyers.

But realtors noted that the impact of the new tax on the market would be limited, because the large majority of flat purchases in the capital are made by Muscovites, who are exempt from the levy.

Krasnoslobodtsev of Vavilon said purchases by foreigners and non-Muscovites account for a mere 3 percent to 5 percent of apartment sales in Moscow. Total sales are expected to increase to over 200,000 this year from 120,000 in 1993.

Moreover, he said, most foreigners may not worry about paying an additional $45,000 dollars, because they only buy most expensive flats priced at over $150,000.

"Rich clients would pay extra," he said.