Investing in Parking Lots in Montevideo. A profitable business
The increase in the number of vehicles in recent years has generated a growing need for parking spaces, especially in areas like Ciudad Vieja and Centro. The growth in the number of vehicles is compounded by the lack of availability for street parking, insecurity, and the concentration of office buildings.
In central areas, the demand for parking and garages is such that parking lots are no longer taking new customers and rates have increased by nearly 45% in the last year.
Investing in parking lots or garages is a profitable option as they have a guaranteed demand especially in office areas, do not require a large initial capital, and the return is quick, with their rate averaging higher than an investment in a property intended for housing.
On April 18, 2016, the Ministry of Economy approved a Regulatory Decree of the Investment Law 16,906/998, which promotes the construction, expansion, and operation of parking lots in certain priority areas of Montevideo.
The benefits will apply to investments in equipment and machinery as well as the cost of civil works intended to integrate the investment cost. Construction, expansion, and operation activities are included. The decree defines operation as the lease, assignment of use, and alienation of the new parking spaces generated. To qualify for the benefits regime, a minimum of 50 new parking spaces must be generated from the decree's entry into force until January 1, 2020.
A novelty of this specific parking regime is the possibility of selling the units and the lack of requirement for performance indicators, both important differences from the general COMAP project regime.
The benefited areas are those declared as priorities and delimited by the streets Hipólito Yrigoyen, Av. Italia, Av. Dr Luis Alberto de Herrera, Av. Gral Flores, Br Gral Artigas, and Rambla, from Rambla República de Chile to Rambla Baltasar Brum, on both sides in all cases.
The investment cost will benefit from the exemption of all taxes and import duties on equipment, machinery, and materials intended to integrate the investment cost, provided they are imported directly and declared non-competitive with the national industry. This point is especially interesting to consider for a parking lot with technology that allows for an agile service with low labor costs. Similarly, for the operation and management of a parking lot, there are interesting equipment and software solutions based on visual recognition, which will make the project even more efficient and profitable.
Benefits can also be obtained such as a credit for the VAT purchases included in the acquisitions of all project goods and a credit for the payment of the IRAE, generated by the parking activity, equivalent to up to 20% of the eligible investment executed and a period of up to 10 years to use the latter. In the event that the construction is carried out on properties declared abandoned by the IMM, both the percentage and the period will increase by 50%, as well as those projects that generate more than 75 new parking spaces. The project goods used for parking operation will be exempt from the Property Tax for a period of 8 years.
Construction on properties declared abandoned by the IMM will have an additional benefit of 50% in the IRAE benefit and in the period for its use, as well as those projects that incorporate more than 75 parking units.
The specific regime for Parking of DEC. 100/16 offers an opportunity for project self-financing through the exemption of taxes generated in parking installation and activity. A credit can be obtained for VAT purchases of investments, exemption of all taxes and duties on investments declared non-competitive with the national industry, exemption of a percentage of the IRAE generated by the parking activity, exemption of Property Tax for 8 years for civil works and for the useful life for the facilities.
In this and all Investment Promotion programs with the aim of obtaining tax exemptions and financing, the analysis of the business plan and the benefits project to be presented to the Ministry is key.
Cra. Patricia Lombardi
Montevideo, May 23, 2016.
