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Global research reveals investing in real estate is most expensive in the Americas

Global research reveals investing in real estate is most expensive in the Americas
24 Nov 2013

Taxand T3 (Total Tax Take) research conducted by Taxand, the world’s largest independent organisation of tax advisors to multinational businesses, has shown that countries across the Americas are the most expensive when it comes to the tax take on Real Estate development and investment.
While the reasons are multi-faceted, the accumulation of sales taxes in the Americas is a major factor, whereas in many European jurisdictions, VAT is neutral due to the deduction of input VAT in commercial leases. 
The T3 research analyses the tax take for real estate investors across 4 asset classes: residential for sale; residential for rent; commercial sale and commercial rent, across 20 countries around the world. For all 4 asset categories, the ranking was topped by countries from the Americas:

Asset type Highest tax take Average Lowest tax take
Residential for sale Chile (27.53%) 19.17% Luxembourg (8.46%)
Residential for rent Argentina (44.00%) 31.02% Chile and China (18.00%)
Commercial sale Chile (15.49%) 11.03% Poland (4.41%)
Commercial rent USA (40.99%) 25.17% Switzerland (14.01%)

In a number of cases, European countries rank as the most attractive locations for real estate investment, with the UK, Luxembourg and Switzerland amongst the cheapest in terms of tax take across the four segments analysed in the research.  
The research also presented the following key findings:

  • Chile is the most expensive country when it comes to the development and sale of both residential and commercial units, predominantly due to the 19% rate of non-recoverable VAT on construction
  • Despite a 2% transfer tax on the acquisition of land, that is sold after development, Luxembourg still has the lowest total tax take on residential sales
  • Argentina tops the rankings on tax take for the development and rental of residential units, explained primarily by its high income tax rate (35%). The lowest rates in China and Chile can be attributed to low rates of income tax, 10% and 20% respectively, as well as the low rates of transfer tax on the acquisition of land
  • Romania and Poland’s recoverable VAT on construction, in combination with their low income tax rates, mean that they are the most attractive locations for commercial development and sales
  • The USA ranks as the most expensive for commercial rents in terms of tax take, largely due to the real estate tax on construction materials and state income taxes

Keith O’Donnell, Global Head of Real Estate at Taxand, said:
“This year’s Taxand T3 research has produced another interesting set of results, highlighting a number of global trends in real estate taxation. Again, the results display a wide gap between the highest and lowest tax takes across the globe when it comes to property. 
“What comes across clearly is that the Americas are offering a much less attractive environment for real estate investors, compared to other jurisdictions. Given the role construction plays in stimulating the economy, many of the higher ranking countries might review their taxation policies to further aid growth.
“In Europe, the environment is much more inviting for property investors, with a variety of incentives, such as recoverable VAT on construction, available in a number of countries.” 

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Taxand's Take

Taxand's Take Author

Keith O'Donnell
Taxand Board member & Taxand global real estate tax service line leader