The rise in tax on commercial property began with the reform of property taxation in 2013 and with state cadastral valuation, in the course of which properties of 5,000 sq m and above were moved from tax charged on average annual value to tax charged on cadastral value. In 2014 the first, and the largest, well-known Moscow commercial properties entered the List of properties on which tax is paid by reference to cadastral value. For a large number of properties, average annual value before they were included in the List was 6 times below cadastral value. Even taking the rates into account (2.2% on average annual value and 0.9% on cadastral value in 2014), property tax rose on average 3 times.
From 2015, as the threshold for including commercial properties in the List was lowered step by step, more and more commercial properties were identified and moved from tax on average annual value to tax on cadastral value. On average, for properties entering the List, the difference between average annual value and cadastral value was 7 to 8 times. Even with the gradual increase in the property-tax rate, from 1.2% in 2015 to 2% in 2023, tax payments rose on average by 2.5 to 3 times.
A note for investors
When buying commercial property it is important to examine how the property is taxed, and in particular the tax base. If a property is commercial but is not included in the List of immovable property for which the tax base is determined as cadastral value, the financial model may be distorted from the moment the property is added to the List. Tax can rise by 2.5 to 3 times, and in some cases, if the building is far from new, the increase can be by tens of times.
A closer analysis of how cadastral value affects the yield of office property is set out in our article, Analysis of how cadastral value affects the yield of office property.
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