Brazil is developing a growing and vibrant real estate market with potential for long term investment. As a non resident, if you intend on purchasing immovable (real) property in Brazil, you will need to consider the following:
- There will be a tax on the transfer of immovable property (‘ITBI’). This tax is a municipal tax and therefore varies according to the municipal in which the real property is located; however the majority of municipalities set a rate of 2% over the market value. ITBI must be paid prior to registering real property and the Real Estate Registry is responsible for verifying that ITBI has been paid.
- Non residents need to register with the Brazilian Registry of Individual Taxpayers (‘CPF’) of the Brazilian Federal Revenue Service.
- For a non resident investor, you need to be aware that you will also be taxed on the future sale of the property. If you have a capital gain, you must pay income tax of 15%, or if you are a resident of a tax haven, the rate is 25%. This income tax must be declared and paid even when you sell the property to another non resident and even when there is no financial flow in Brazil.
If a non resident investor intends to acquire more than one property in Brazil, it is normal practice to incorporate a Brazilian company to purchase and sell property. The company may be taxed under a special tax regime called Deemed Profit System, whereby the company has to pay the following taxes:
- Corporate Income Tax;
- Social Contribution on Net Profits;
- Contribution to Social Integration Program – PIS; and
- Contribution for Social Security Financing – COFINS.
Despite the number of taxes applicable to a company under the Deemed Profit System, the total tax burden for all four (4) taxes is a maximum of 6.73% of the total revenue received.
- Further it is important to note that dividends in Brazil are exempted from taxation.
In summary, while a natural person (whether resident or non resident) pays 15% Income tax on the capital gain from the sale of real property, a company that opts for the Deemed Profit System pays only a maximum of 6.73% on the revenue from the same sale. Therefore when considering purchasing property in Brazil, consider for taxation purposes, the most appropriate entity to purchase real property.
Special thanks to our Lawyers Associated Worldwide (LAW) member firm, Lacaz Martins, Pereira Neto, Gurevich & Schoueri Advogados, the firm’s partners, Ricardo Lacaz Martins (Doctor at University of Sao Paulo) and Eduardo Santos Arruda Madeira (LL.M. in International Taxation at University of Leiden), for the assistance in preparing this summary.