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The Law 4,591/1964 rules the real estate development in Brazil, and established in its article 28: “(...) real estate development shall mean the activity performed with the purpose of promoting and performing construction, for total or partial sale, of a building or group of buildings comprised by independent units”.
A developer shall mean a legal entity or individual, whether trader or not, which, although not carrying out the construction, it undertakes to sell or conducts the sale of the land notional fraction seeking to subject such fractions to independent units, in buildings to be constructed or under construction under the condominium system or merely accepts proposals for conducting such transactions, thus, coordinating and performing the development thereof and being responsible, as applicable, for the delivery of the finished works within certain term, price and conditions.
There are three types of development. The construction may be promoted and performed (a) by the developer, (b) under management or turnkey construction contract, or (c) directly contracted between purchasers and the construction company.
On August 2004, through the Law 10.931, the government created the “Patrimônio de Afetação” herein called “encumbrance asset”. This law establishes that each real estate development shall have separate accounting registers separate from the other activities of the real estate developer company. The payments made by the purchasers can not be mixed with the assets of the contractor/ construction company and shall be used for such specific real estate development. This development will have a specific number of General Taxpayer Register (CNPJ), issued by the Federal Revenue Office. In accordance with Article 31-A of the Law 4.591 of December 16, 1964, the real estate developer may opt for the encumbrance system. The encumbrance asset will be extinguished with the register of the construction, register of the right of acquisition or domain document in name of the purchaser and, when it is the case, with the accomplishment of the obligations with the financing institution.
The following items are not included as encumbrance asset:
- The values which exceed the necessary amount to complete the construction, taken into account the amounts to be received until its conclusion and the necessary resources to be paid due to the financing of the construction, if it is applicable; and
- In case the real estate development is contracted from third parties by full-job contracting or by managing, the amount correspondent to the price of the sale of the notional fraction of land of each unit sold.
Furthermore, according to the Law 10.931, the companies that opt for this system of real estate encumbrance may apply for the RET. The developer will be subject to pay the amount equivalent to 7% of the monthly income earned that will correspond to the monthly unified payment of the following taxes and contributions: Corporate Income Tax (IRPJ); Social Contribution on Net Income (CSLL); Employees’ Profit Participation Program (PIS) and the Contribution on Social Security Financing (Cofins). The RET does not include State and Municipal taxes. The application for the RET will be accepted upon fulfillment of the following requirements: I – establishment of encumbrance on plot of land and improvements thereon, subject-matter of the real estate development; and II – delivery and approval of RET application statement by the appropriate unit of the Federal Income Office.
PAULO ROBERTO MURRAY – LAW FIRM
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