In most international tax jurisdictions, in accordance with International Accounting Standards, it is possible to depreciate component parts of a property, such as air conditioning plant and lifts at different rates from the rest of the building. However, this is rarely done.
A combination of property costing, valuation and accounting skills are required to carry out this exercise effectively but most international accountancy practices do not possess these skills in-house.
This results in the entire cost of the property being depreciated at a single composite rate, meaning that significant levels of tax relief are missed.
The following example illustrates the benefit of carrying out a cost segregation analysis over depreciating the building at a single composite rate of 4%.
Call centre in Madrid with a total construction cost of €26.3m
How can Capitus help?
The following approach has been used successfully in many international property investment and development situations.
- Advise you on the tax legislation relating to the treatment of property costs relevant to the country in which you are investing.
- Liaise with your accountants on all relevant local issues.
- Carry out a detailed survey of the property, if required.
- Prepare a cost segregation analysis of construction or purchase costs together with an assessment of useful economic life.
- Submit the cost segregation analysis to your local accountants for submission to the relevant tax authorities.
- Support the figures in negotiations with the relevant tax authorities where required.
If applied properly, this methodology will result in much greater levels of accelerated tax relief.