Which tax should an individual entrepreneur on the simplified taxation system (USN) pay when selling real estate: personal income tax (NDFL) or the simplified tax (USN)?

The same income should not be subject to both PIT and STS tax simultaneously: its classification depends on whether the sale of the real estate is recognized as a personal transaction of an individual or as entrepreneurial activity, i.e., activity carried out by a sole proprietor. Thus, a sole proprietor using the STS does not pay PIT on income from entrepreneurial activity, as such income is subject to the tax paid in connection with the application of the STS.

The question of the correct classification of income is resolved by taking into account the specific circumstances of the case (Ruling of the Constitutional Court of the Russian Federation No. 189-O dated January 31, 2023). What matters is not the formal designation of the seller in the contract, but the actual content of the activity within which the object was sold. Even if the contract is concluded in the name of an individual, this does not in itself exclude the possibility that the income was received as part of entrepreneurial activity and should be subject to the STS tax (Letter of the Federal Tax Service of Russia No. SA-4-7/8614 dated May 7, 2019).

Income from the sale of real estate is subject to PIT if such a sale is not related to the taxpayer's entrepreneurial activity. Accordingly, if an individual who is not registered as a sole proprietor sells real estate, the income they receive must be subject to PIT.

At the same time, the fact that a seller has the status of a sole proprietor is not an independent basis for failing to recognize the sale of real estate as a transaction subject to PIT. In such a case, what matters is not the status of the seller, but how the real estate object being sold was actually used by that person.

Courts proceed from the need to evaluate the totality of circumstances, including the purpose of acquiring the property, the duration of ownership, the presence or absence of systematic real estate purchase and sale transactions, relevant NACE (OKVED) codes for property sales, and the taxpayer's actual behavioral model (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 6778/13 dated October 29, 2013).

For instance, if a seller has registered NACE code 68.20 "Renting and operating of own or leased real estate" as their primary business activity, lacks NACE code 68.10 "Buying and selling of own real estate," has owned the property for a long time, and has not previously engaged in purchasing real estate for the purpose of resale, the Federal Tax Service of Russia, adhering to this approach, recognizes the sale of the object as an activity of an individual (Resolution of the Ninth Arbitration Court of Appeal No. 09AP-21641/2025 dated June 23, 2025, in case No. A40-278480/2024). Consequently, in such a case, PIT is the tax that must be paid. Thus, courts classify income from the sale of real estate as income subject to PIT if the circumstances of the case indicate that the object is being sold outside the scope of entrepreneurial activity.

Income from the sale of real estate is subject to the STS tax if such a sale is recognized as part of the taxpayer's entrepreneurial activity, i.e., the entrepreneurial nature of the sole proprietor's activity is expressed specifically in the sale of such property, rather than in any other interaction with it prior to its sale.

Recently, the following position has emerged in judicial practice: in cases where entrepreneurial activity was conducted in relation to an object (for example, the premises were rented out), its sale is subject to the STS tax. When applying this position, courts focus specifically on the use of the real estate for business purposes; however, in such cases, the STS tax is applied taking into account the presence of other signs that allow the activity of selling the object to be classified as entrepreneurial. For example, if after selling an apartment, a sole proprietor purchased other real estate that is also used for renting out, courts conclude that in such a situation, the STS tax must be paid (Resolution of the Arbitration Court of the Ural District No. F09-6139/25 dated February 3, 2026, in case No. A50-6729/2025). In this regard, it is incorrect to claim that this approach is the exact opposite of the one described above.

In practice, evidence for classifying income as entrepreneurial usually includes the presence of NACE codes related to the purchase, sale, rental, or management of real estate, the use of the object as a business asset, multiple real estate purchase and sale transactions, the acquisition of property for the purpose of resale or systematic profit generation, and the reflection of income from similar operations in business accounting (Resolution of the Arbitration Court of the Moscow District No. F05-8609/2024 dated March 27, 2025, in case No. A40-166406/2023). The intended use of the object also carries additional weight: for commercial types of real estate, a conclusion of personal ownership is initially less likely than for residential objects (Resolution of the Arbitration Court of the Moscow District No. F05-11148/2025 dated July 30, 2025, in case No. A40-225259/2024).

Incorrect determination of the tax payable on income from the sale of a real estate object can lead to the following:

1. Additional tax assessments, penalties, and fines
2. If a taxpayer pays personal income tax (PIT), but the Federal Tax Service of Russia subsequently classifies the income as business-related, the tax may be reclassified and additional amounts assessed. Furthermore, such an error may result in the imposition of a fine (20% / 40% of the unpaid tax amount) (Article 122 of the Tax Code of the Russian Federation).
3. Reclassification of the taxpayer's entire activity
4. In the event of multiple real estate transactions, the Federal Tax Service of Russia or a court may conclude that the taxpayer's behavior is systematically entrepreneurial in nature and may reassess the tax consequences for several transactions at once (Cassation Ruling of the Second Cassation Court of General Jurisdiction dated November 1, 2023, No. 88a-27028/2023).

Regarding the taxation of real estate sales by individual entrepreneurs under the simplified taxation system (STS), two approaches can be observed in judicial practice. Under the first approach, courts proceed from the premise that for the STS to apply, the sale transaction itself must be entrepreneurial in nature. Under the second approach, the use of an asset in business activities is considered a significant argument that its subsequent sale is also related to business activities. However, in practice, such cases usually involve other signs of business activity, which suggests that these approaches are not directly contradictory.

Ultimately, the deciding factors are not only the type of property and the holding period, but also the purpose of acquisition, the nature of its use, the presence or absence of signs of systematic real estate trading, and the behavioral model chosen by the taxpayer.

Consequently, the practical task for the seller is not only to compare the tax burden between PIT and the STS but also to correctly determine the legal nature of the income received.

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C Cases Recommendations

The C Cases team recommends:

1. Before selling an asset, determine whether the sale is viewed as a personal disposal of property or as part of a business activity;
2. Check your OKVED (business activity) codes and look for signs of systematic real estate trading.
3. Develop a unified tax position for the transaction and consistently reflect it in the contract, tax filings, and cash flow records.
4. If there are ambiguous factors, prepare arguments and supporting documentation in advance to justify the "personal" nature of ownership if you are focusing on PIT, or the "business" nature if you are paying tax under the STS.

If you are an individual registered as an entrepreneur under the STS and are planning to sell real estate, and you would like to assess the tax consequences in advance and reduce the risk of additional assessments, the C Cases team is ready to conduct a comprehensive analysis of your real estate transactions, prepare a position on the application of PIT or the STS, and provide transaction support.

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Sources

1. Tax Code of the Russian Federation (Part Two) No. 117-FZ of August 5, 2000;
2. Ruling of the Constitutional Court of the Russian Federation No. 189-O of January 31, 2023;
3. Resolution of the Arbitration Court of the Ural District No. F09-6139/25 of February 3, 2026, in case No. A50-6729/2025;
4. Resolution of the Ninth Arbitration Court of Appeal No. 09AP-21641/2025 of June 23, 2025, in case No. A40-278480/2024;
5. Resolution of the Arbitration Court of the Moscow District No. F05-8609/2024 of March 27, 2025, in case No. A40-166406/2023;
6. Cassation Ruling of the Second Cassation Court of General Jurisdiction No. 88a-27028/2023 of November 1, 2023;
7. Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 6778/13 of October 29, 2013;
8. Letter of the Ministry of Finance of Russia No. 03-04-05/60201 of June 28, 2023;
9. Letter of the Federal Tax Service of Russia No. SA-4-7/8614 of May 7, 2019.