On 31 January 2013, the Ministry of Finance released Letter 03-07-08/1917, clarifying the right to deduct input VAT paid on the acquisition of immovable property situated in Russia by a branch of a foreign legal entity registered for tax purposes in Russia.

The branch acquired immovable property from another foreign legal entity that operates in Russia through a permanent establishment (PE) situated in Russia.

According to article 171 of the Tax Code, a taxable person may deduct input VAT paid on the acquisition of immovable property rights on the condition that the immovable property is used in taxable operations.

Furthermore, article 172 of the Tax Code provides that a taxable person may deduct the VAT paid on the acquisition if the immovable property rights are registered in the bookkeeping records and also are substantiated by primary documents.

Subject to satisfying the requirements provided in articles 171 and 172 of the Tax Code, the Ministry of Finance concluded that a branch registered in Russia and belonging to a foreign legal entity may deduct the input VAT on the acquisition of immovable property situated in Russia, even in cases where the immovable property is acquired from another foreign legal entity that operates in Russia through a PE.

The Ministry of Finance also clarified that the VAT deduction right should not be adjusted depending on the payment method provided in the sale-purchase agreement.

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