The Ministry of Finance (the “Ministry”) has confirmed that a tenant is entitled to claim depreciation deductions on permanent improvements made to leased immovable property. In order to qualify, such improvements must constitute capital repairs (reconstruction, modernisation and technical re-equipment of property). Current maintenance work may not be depreciated.

Upon expiry of the lease agreement, the tenant must cease such depreciation. However, based on the provisions of the Civil Code, if a tenant continues to use the property upon expiration of the lease agreement and the landlord does not object, then the lease agreement is considered to be prolonged for an indefinite period of time under the same terms and conditions.

In this respect, the Ministry has clarified that when the lease agreement is prolonged, the tenant may continue to deduct the cost of major permanent improvements until such time as one of the parties terminates the lease agreement.

[Letter No. 03-03-06/2/75 of the Ministry of Finance of the Russian Federation, dated 3 May 2011]