Article 4 of Law No. 18,795 and its subsequent implementing decrees (Decree 129/2020 and Decree 340/2020) establish a series of tax benefits for those who develop and invest in promoted housing. Below we review those benefits, distinguishing between those that apply to the developer or promoter and those that extend to the investor.
Benefits for the developer or promoter. Value Added Tax (VAT) (Art. 4 of Law 18,795, subsections D and F; Art. 3 of Decree 129/2020, subsections D and E). Transfer: the first transfer of the promoted real estate is exempt from VAT.
Purchase of inputs: the VAT on purchases of goods and services incorporated directly into the works (materials, labor subcontracts and technical services) is not treated as a non-recoverable cost. A VAT refund is granted by means of credit certificates. A VAT refund will only be allowed on invoices for goods or services incorporated into the civil works up to two years after the works are completed.
Corporate Income Tax (IRAE) (Art. 4 of Law 18,795, subsections A and B; Art. 3 of Decree 129/2020, subsections D and E). Exemption on transfer: for IRAE purposes, income derived from the first transfer of the promoted dwellings is exempt, provided the transfer takes place no later than nine fiscal years after the fiscal year in which the works are completed.
Net Wealth Tax (Impuesto al Patrimonio, IP), construction phase (Art. 3 of Decree 129/2020, subsections B and C). Works under construction (land and improvements) are exempt from Net Wealth Tax as of the close of the fiscal year in which the exemption application was filed and for the following fiscal years until the one in which the works are completed. These assets will be considered taxable for the purpose of computing liabilities.
Completed dwellings intended for sale will be exempt from Net Wealth Tax in the fiscal year in which the works are completed and for the following three fiscal years. These assets will also be considered taxable for the purpose of computing liabilities.
Benefits for the investor. The exemption on income from real estate capital is subject to geographic and financial-inclusion conditions. Exemption from IRPF, IRNR and IRAE for 10 years (Art. 3 of Decree 129/2020, subsection G): 100% exemption of income generated by the rental of dwellings located in the areas determined for that purpose by the ministry responsible for housing, with the consent of the Ministry of Economy and Finance (MEF), or when the lease is made through the Rental Guarantee Fund (Fondo de Garantía de Alquileres, FGA) or other rental guarantees that meet requirements equivalent to those of the FGA.
60% exemption if the foregoing conditions are not met. The lease must be for at least 12 months: temporary rentals do not qualify for these exemptions.
Net Wealth Tax (IP), post-construction (Art. 3 of Decree 129/2020, subsection H): the promoted property is exempt from Net Wealth Tax for 10 fiscal years. If the unit is leased, obtaining this exemption requires that it be leased for at least 6 months in the relevant fiscal year.
Real Estate Transfer Tax (Impuesto a las Transmisiones Patrimoniales, ITP) (Art. 4 of Law 18,795, subsection E; Art. 1 of Decree 340/2020): the taxable event on the transfer of real estate is exempt for both the seller and the buyer. To enjoy the benefit, the certificate from the Advisory Commission on Social-Interest Housing Investment (Comisión Asesora de Inversiones en Vivienda de Interés Social) must be submitted. It is important to note that the benefit applies only to the first transfer: if the property is bought for resale, the next transfer will be taxable. The period is 10 years after completion of the works.
In summary. Law No. 18,795 combines exemptions from VAT, IRAE, Net Wealth Tax and ITP that can significantly improve the economics of a project, both for those who build and for those who invest. Using them correctly requires structuring the transaction with precision and meeting the formal and time requirements of each benefit.
At MECOL ESTUDIO we support developers and investors in the analysis and structuring of promoted-housing projects, so that each tax benefit is applied with legal certainty and predictability.
