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US Tops List Of Most Expensive Places To Invest In Commercial Property

US Tops List Of Most Expensive Places To Invest In Commercial Property

Research conducted by Taxand, the world's largest independent global network of specialist tax advisors to multinational businesses, has shown that the US is the most expensive country in the World in which to invest in commercial real estate deals by total tax take.

The total tax take on a commercial property deal in the US will cost the investor over 43.33% of income lost to the taxman. The US may have the World's largest commercial property market, but as this research shows that it also has the highest impact on possible returns for investors.

The US is closely followed by Argentina (41.34%), Brazil (35.82%) and the UK (33.8%), with Malaysia (33.31%) making up the top five.

The alarmingly high US total tax rate is made up of the high rate of income tax (35%), additional states taxes (6.6%) and non-recoverable sales taxes on construction.

The research, conducted in over 20 key global markets, also shows that commercial real estate investors in India pay the least amount of tax at an amazingly low 5%. This very low tax rate reflects the Indian government's desire to attract inward investment from developers in order to secure it as a global business hub in the region, and the rate competes favourably with other key emerging markets such as China, which had a much higher rate of 29.04%.

This move to attract real estate investment is mirrored by the other jurisdictions occupying the bottom of the research table as the cheapest in terms of total tax take. Switzerland, a long standing low tax regime in Europe, has a total tax take of 13.28% followed by Luxembourg (14.14%), Poland (15.57%) and Finland (15.96%), all of which wish to be seen as business friendly jurisdictions.

Keith O'Donnell, Global Head of Real Estate, at Taxand, also commented: "The research shows us that commercial property investors need to think carefully before investing in new office space around the globe as in key global jurisdictions the taxman may take the lion's share of any profits made."

"This research on real estate investment has dispelled a few myths in the world of tax. What is of particular interest is that the widely held belief that emerging market economies posed a greater commercial property investment risk, in return for the assurance of lower tax regimes, simply is no longer the case."

"On top of this, countries that were traditionally seen as being pro real estate investment in the developed world, such as France and Germany, are in fact only middle of the table with between 20% and 25% tax rates when the whole tax impact is examined properly. When investors look closely at the tax they are being charged it may make them rethink where they should invest in future and have an impact on the development of further commercial property in some countries."

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Research methodology

To arrive at the figures, Taxand has taken into account VAT (or its local equivalent), corporate income tax, and property taxes. The property taxes were usually subject to various country specific assumptions and modifications as they often differ on a municipality basis or sometimes just location basis.

Those were reviewed by the coordinating Taxand team to assure comparability. Administrative fees, notary fees, court fees were excluded as having a relatively low impact on the overall tax take.

To ensure comparability of the results, certain data has been fixed such as size of the building, investment costs, and 100 percent non-interest bearing equity financing. With all of that built into the model, each real estate team from Taxand adopted it to the local law to ensure comparability.

Taxand's Take

Taxand's Take Author