Understand the true implications of tax reform in the real estate industry

Summary
Supplementary Law Project No. currently being implemented in the Senate. 68 (PLP 68) brings changes in real estate operations including rates and discounts.

Complementary Law Project no. 68 (PLP 68) is currently pending before the Economic Affairs Committee (CAE) of the Senate. The plan approved by the House considers activities with real estate to include the following activities: (i) purchase and sale of real estate, sale of real estate resulting from the development of real estate and subdivision of land; (ii) strict transfer and transmission of real rights over real estate or institutional actions; (iii) leases, assignments due to financial difficulties and leases of real estate; (iv) real estate brokerage and administration services and (v) construction services.

It is worth highlighting the inclusion of construction services that were not included in the version sent to the chamber by the federal government.

Easements, the use or transfer of space, the use permit, the right of way and other cases in which the use of physical space is permitted are, strictly speaking, subject to taxation by the IBS and the CBS under the same rules as the leases. IBS and CBS do not apply to the sale, rental and leasing of real estate owned by an individual and not used primarily in his or her economic activities.

However, the regime does not establish objective criteria to determine when a person carries out a main real estate activity, based on the number or value of the activities.

In the version of PLP 68 sent to the House, the Center considered that real estate activities would benefit from a 20% discount on the combined IBS and CBS rate. Delegates considered it reasonable to increase this discount to 40% on general activities and 60% on rental, hard work and leasing activities. Deductions can be differentiated by activity, aimed at sufficiently stimulating the economy and creating employment, thus, for example, real estate development may have a greater discount than rent, which may receive a greater discount than the intermediate real estate business.

The progressive nature of taxation is maintained by the Chamber of Deputies, characterized by the so-called “social reduction”, where the greater the value of the property, the higher the tax proportionally. In this sense, a “social reduction” is established, of R$ 100,000 for a new home and R$ 30,000 for a home, after deducting the adjustment reduction, up to the limit of the value of the calculation base. This means that new properties and high-value residences will pay more taxes than popular ones.

I understand that progressivity may be more appropriate by creating a large number of bands and ratios. In addition, it is important to determine the criteria for updating the value of social amortization because over time it will erode due to inflation.

Likewise, an “adjustment mitigator” was created with the objective of mitigating the impact resulting from the transition phase and the acquisitions of suppliers subject to the conventional IBS and CBS regime. Therefore, it is expected that when the taxpayer sells real estate subject to the regular IPS and CBS regime, he will be able to deduct based on the calculation the amount related to the adjustment, up to the limit of its value.

Well, we know that IPS and CBS will replace ICMS, ISS and BIS and Goffins respectively. Since there is no impact of the ICMS and ISS in real estate transactions (expropriation, transfer, lease and leasing), the replacement will be carried out only in relation to the PIS and COFINS.

The Ministry of Finance announced that the IPS and CBS ratio will be 27.97%. Real estate activities are subject to the PIS and COFINS tax, using a combined rate of 9.25% for companies that tax their actual profits and 3.65% for companies that tax their hypothetical profits. Considering the standard ratio published by the Ministry of Finance and reduced to 40% in general operations and 60% in leasing, hard work and leasing operations, the efficiency ratios of IBS and CBS would be 16, 78% and 11, 19 respectively. %

In other words, a direct comparison of current rates with future rates indicates an increase in the tax burden, the negative impact of which is mitigated by the social and adjustment mitigator and the possibility of crediting the IBS and CBS in the receipt of inputs. . . I also remind you that in addition to the IBS and CBS, it is expected to maintain the incidence of the ITBI, which will further increase the tax cost on purchase and sale activities.

In conclusion, in this environment, there is uncertainty among companies in the real estate sector and it is feared that eventually the sector will be one with more effective taxation to compensate for the reduced sectors.