A feasible legal structure to invest in real estate in Argentina
In recent years the construction industry has grown, fuelled by various internal and external factors. Intense economic activity since 2003, in particular the agribusiness sectors, have had a strong influence in our region. The structural housing deficit, added to the lack of other alternative investments all conform to a positive real estate scenario. This sector is not affected by the sub-prime world crisis or the credit retraction, because of the low participation of banks in financing this sector.
The proliferation of real estate developments and the incorporation of non traditional investors have brought a new legal structure to the construction industry, referred to as a trust structure. This vehicle has been used in many cases where the land owner prefers not to sell, but rather become part of the project.
Historically, the ordinary vehicle used for real estate development has been the condominium structure, which is a fragile legal vehicle. In this structure the common assets are exposed in the event of insolvency, death or divorce etc. of any of the parties to the condominium. Furthermore, there are no precise limits that allow for quarantining of certain assets from the rest of a project.
The financial accounting concepts in a construction trust are similar to a commercial corporation.
Notwithstanding the construction trust is not incorporated or a legal entity, it is considered a "tax entity" under Argentine tax law. As such, it will be a "tax contributor" and be subject to various imposts and taxes in respect of any activities carried out. Specifically, the construction trust is subject to income taxation. In a construction trust, the trustee is solely responsible for debts, tax calculations, filings and payments (exceptions may apply). The responsibility can also be extended to the creator/beneficiary.
The construction trust is also liable to a presumed minimum income tax. This is calculated annually as a percentage of the asset value and consideredan advance payment in respect of its income tax.
All goods and services purchased by the construction trust will be subject to VAT. However, the VAT payable will ordinarily be offset by the VAT debit originated or determined at the moment of assigning the ownership of the assets included in the trust to its creator/beneficiary or to the beneficiary or third party by means of a sale or any form of transmission of registered assets.
Sales tax will be imposed on the income arising from the sale of the assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.