A residential property registration levy introduced in the city of Moscow has recently come into force, requiring non-Muscovites to pay tens of thousands of dollars to buy property in the city.


Decree No. 67 of the Moscow City Duma of Sept. 14, 1994 implemented Law No. 15-67 of the City of Moscow of Sept. 14, 1994. The levy came into effect 10 days after the official publication of the decree.


The decree's stated purpose is to provide compensation to the Moscow government for its costs of developing the city's infrastructure and maintaining standards for its residents.


The law outlines who must pay the levy and the procedure for calculating and paying it.


Buyers who must pay the levy are Russian citizens, citizens of CIS countries, foreign citizens and stateless persons who purchase residential premises in Moscow.


However, those who are permanent residents of Moscow or the Moscow region, those who were previously permanent residents and who are returning there to take up residence, servicemen and those who exchange apartments with persons leaving Moscow are exempt from the levy.


The levy is fixed at 5,000 minimum monthly labor payments, a figure which is determined by legislation of the Russian Federation. The minimum monthly labor payment is presently 20,500 rubles ($6.60), so the levy is currently worth $33,000. For citizens of the Russian Federation, the levy is reduced to 10 percent of this sum.


The levy imposes a heavy additional burden on non-Russian individuals purchasing residential premises in Moscow that will discourage all but the wealthiest of buyers.


As the housing supply in Moscow is short, the effect of discouraging purchases will mean that the market for leases will be greater, resulting in higher lease costs.


The extent to which the cost of a lease will be raised will depend upon the number of non-Moscow residents seeking to move to Moscow, and that will depend upon political and economic stability and the amount of investment in the city.


There are doubts about the legality of the decree: Because of its discriminatory nature, there are good legal reasons for non-Russians not to pay more than the rate required of Russians.


Andrew Rosemarine is a tax consultant with Ernst & Young.