RFB decides that Special Tax Regime is applicable to housing developments under an allocation of assets system

On February 01, 2023, the Federal Revenue of Brazil (“RFB”) published Answer to Inquiry No. 24 (“COSIT 24”), which established that the Special Tax Regime (“RET”), instituted by articles 1 to 10 of Law No. 10,931/04, is applicable to house construction projects when the incorporation is carried out under an “allocation of assets system” – a tax regime in which the allocation of assets is made for a specific purpose that must not be altered.

The RET is a specific tax regime for real estate developers that opt for the allocation of assets system. The benefit reduces the tax burden to 4%, which is lower than the 6.73% rate applied under the regular regime and resulting from the sum of:

1. the application of basic and addition rates of the Corporate Income Tax (“IRPJ”) and Social Contribution on Net Income (“CSLL”), in the presumptive profit; and
2. the Contribution to Social Security Financing (“COFINS”) and Social Integration Program (“PIS”), in the cumulative calculation system for such contributions.

The RET is a tax benefit aimed at encouraging developers to opt for the allocation of assets system, which protects consumers and ensures security for the project.

The construction of collective detached or semi-detached housing was already provided for in article 68 of Law No. 4,591/64 (“Real Estate Incorporation Law”). However, such developments did not classify as real estate incorporation and, therefore, were not eligible for the benefits of the RET. Under the Real Estate Incorporation Law, before the publication of Law No. 14,382/2022, the mere subdivision or condominium development was not classified as incorporation, which, in turn, was defined as a business activity, thus differing from:

1. subdivision, which consisted in the division of a piece of land into smaller parts; and
2. multi-ownership condominium lots, a special condominium that subdivides the piece of land into ideal fractions, distinguishing what is of common use and what is private, without linking each subdivision to the buildings and defining the streets and common areas as private property.

In this regard, the legislation, seeking to benefit real estate developers and stimulate the real estate market, created the RET, which was only applicable to developments that were classified as real estate incorporation of multi-ownership condominiums. As such, different types of incorporation were excluded from the RET, even if the regime was contractually bound to the construction of housing units, as provided for in the Real Estate Incorporation Law and, therefore, did not include the developer’s activities regarding the sale of future lots, in accordance with the previous understanding established within the scope of Consultation Solution No. 196, of 2015.

Subsequently, the publication of Law No. 14,382/2022 introduced changes regarding real estate incorporation provisions. COSIT 24 was divided into two sections regarding the interpretation of the regime before and after the publication of Law No. 14,382/2022.

Law No. 14,382/2022 changed the wording of Art. 68 of the Real Estate Incorporation Law, equating subdivisions of land to real estate incorporation, for the purpose of applying the RET, provided that the sale of subdivision lots is linked to the construction of detached or semi-detached houses, as provided for in COSIT 24.

As a result, it was established that:

1. Before the publication of Law No. 14,382/2022, on June 28, 2022, subdivisions of land linked to the construction of detached or semi-detached houses were not eligible for the RET.
2. After the publication of Law No. 14,384/2022, subdivisions of land linked to the construction of detached or semi-detached houses were equated to real estate incorporation.

As such, provided that all requirements in the legislation are met, especially article 68 of the Real Estate Incorporation Law, developers can opt for the RET and, consequently, benefit from the tax incentive (reduction from 6.73% in the regular regime, to 4% in the RET).

Demarest’s Real Estate team is available to provide any further clarifications that may be necessary.