Companies may advance the deduction of real estate leasing installments at the start of construction

The management of assets under construction through financial leasing presents relevant tax particularities for the optimization of Corporate Income Tax (IS). A recent binding ruling from the Dirección General de Tributos (DGT) has specified the conditions under which an entity may begin to deduct the portion of leasing installments corresponding to cost recovery before the property is operational.

What the DGT has ruled

The advisory body determines that, to apply the option provided for in Article 106.8 of the Corporate Income Tax Law (LIS), it is necessary for the financial leasing contract to strictly comply with the requirements of sections 1 to 4 of said regulation. If these conditions are met, the deduction of the portion of the leasing installments linked to cost recovery may be advanced to the effective start of the asset's construction.

For this advancement to be valid, the DGT establishes the following technical criteria:

• The asset must be tangible fixed assets.
• The construction must have a minimum duration of 12 months.
• The asset must possess unique technical and design requirements, not being a mass-produced good.
• The installments must be paid in a significant manner before the completion of the work.
• The annual amount of cost recovery must be equal to or increasing over time.

What it means for you

This resolution allows entities using financial leasing contracts to acquire assets under construction greater flexibility in managing their deductions. Instead of waiting for the property to be in operation to begin amortization or deduction, companies that meet the asset's uniqueness and the construction duration requirements can integrate these costs into their taxable base from the start of the project.

What should be done

Companies planning to start construction projects through real estate leasing should verify the nature of their contracts and the technical specificity of the assets. It is necessary to ensure that the payment schedule and the duration of the work comply with the parameters of the LIS to avoid contingencies in the application of this advanced deduction. It is recommended to assess each contract individually to confirm that the asset is not classified as a mass-produced good.