Developers Seek Reduction of Tax on Land Plots for Individual Housing Construction

As per Kommersant, following an increase in the land tax rate from 0.3% to 1.5% for plots intended for individual housing construction (IHC), dozens of developers have initiated disputes with tax authorities. The issue is that since late 2023, tax inspectorates have begun applying increasing coefficients, causing the tax burden on such developers to reach up to 6%, a twentyfold increase. Developers of multi-apartment buildings, on the other hand, have retained the preferential rate. Arbitration court practice remains inconsistent, and now the Constitutional Court of Russia will address the shortcomings of the regulation. According to lawyers interviewed by Kommersant, the Constitutional Court's ruling will be relevant not only for businesses but also for citizens who own plots for construction.

The Constitutional Court has accepted a complaint from Corner Kazan LLC for consideration. The company argues that the manifold increase in the tax burden for IHC developers — which has grown twentyfold since 2019 — is unconstitutional. Initially, a preferential rate of 0.3% of the cadastral value of a plot was established for all lands used for housing construction as a state support measure. However, amendments to the Tax Code subsequently removed the preferential rate for IHC starting in 2020, subjecting them to the general rate of 1.5%. On 16 October 2023, the Federal Tax Service issued a letter stating that increasing coefficients must be applied to the general tax rate.

Alexei Nesterenko, Managing Partner at FBK Legal, commented on the case:

The increasing coefficients of 2 and 4 were originally introduced as an incentive tool for timely construction under the reduced rate of 0.3%, with a simple logic — delaying construction increases the tax amount, thereby negating the benefit of the preference. However, in his view, the current wording of the law allows for two directly opposing interpretations of which rate the increasing coefficients apply to — the general rate of 1.5% or the preferential rate of 0.3%.