The purchase of a property in Brazil, as either a resident or a non resident, involves a series of fiscal obligations which must be met:

IMPOSTO SOBRE TRANSMISSÃO INTERVIVOS DE BENS IMÓVEIS -I.T.I.V.- (TRANSFER TAX):

This is a Tax assessed by the municipalities which is due when real estate is transferred. The normal rate would be between 2% and 6% of the real value or the appraised value of the real estate whichever is higher. The average tax rate would be 3% but varies from one municipality to another. In Rio Grande do Norte and Natal the rate is 3%.

IMPOSTO PREDIAL E TERRITORIAL URBANA -I.P.T.U.- (Urban Real Estate Tax):

This is an annual tax only on urban property charged by the municipalities. The IPTU tax must be paid every year, in one payment to be made between January and August of the following year. Failure to pay this tax may result in the initiation of sanction procedures. The tax rate will change for each different municipality and town council but normally this is a very small figure.

IMPOSTO SOBRE A PROPIEDADE TERRITORIAL RURAL -I.T.R.- (Rural Real Estate Tax):

This is an Annual tax only on rural property charged by the federal government to discourage the maintaining of unproductive properties. The tax rate will change for each different municipality and town council.

IMPOSTO DE RENDA PESSOA FÍSICA -I.R.P.F.- (Income Tax):

Non residents are subject to Brazilian income tax in regard to the income earned from Brazilian sources. Incomes obtained in Brazil by non residents are subject to a standard withholding tax of 25%. Once you have a CPF number (Brazilian Tax Code) in place, you are obliged to submit an Income Tax declaration at the Receita Federal, even if it is a negative declaration.

CAPITAL GAINS TAX:

Capital gains tax on the sale of a property by individuals will be subject to Brazilian tax at a rate of 15%. The tax is determined by the difference between the sales price and the acquisition cost duly reported on the annual income tax return. The tax is payable up to the last business day of the month following the month in which the gain occurred, since it is a definitive taxation (i.e. not subject to adjustments on the annual income tax return).

Gains derived from sales of real estate acquired by the seller before 1970 are tax exempt for Brazilian residents. Proceeds from the sales of real estate acquired by the seller between 1970 and 1988 have a progressive reduction on the capital gains levied on them.

b) CORPORATIONS
Corporate capital gains arising from the sale or exchange of fixed assets are treated as ordinary income and taxed at the regular rates. Due to the fact that Brazil no longer monetarily restates fixed assets for purposes of inflation, the amount of the capital gains will be determined as being equal to the positive difference between the sale price and the disposed asset's original investment value less the accumulated depreciation/amortisation.

c) NON-RESIDENTS
Brazilian non-residents are generally subject to withholding tax at a rate of 15% (unless payments are made as a result of an employment relationship or a service contract, in which case the rate is 25%) levied on the payment or credit of Brazilian-source income, except when tax relief is provided by treaties to avoid double taxation.

It should be noted that income paid, credited, remitted, etc., to a beneficiary domiciled in a tax haven country/territory will be subject to 25% withholding tax. For Brazilian tax purposes, a tax haven is considered to be a country that taxes income at a rate lower than 20%.

Capital gains realised by non-residents are generally determined as being the difference between the sales price and the cost basis of the asset or right sold, which must be substantiated by the corresponding document usually issued when the acquisition takes place. If the cost cannot be substantiated in this manner, the acquisition amount will be determined, in some instances, based on the capital amount registered with the Brazilian Central Bank related to the purchase of the asset or right. In all other instances, the cost will be deemed to be zero.

IMPOSTO SOBRE A TRANSMISSÁO "CAUSA MORTIS" E DOAGÁO DE BENS E DIREITO -I.T.C.M.D.- (Inheritance and Donation Tax):

This is a Tax levied by the state on the transmission of real estate by way of donation or inheritance. This tax may vary per state but an average rate would be 4% of the appraised value. (The maximum in the whole country is 8% of the appraised value).

COMMENTS ABOUT IMPOSTO SOBRE OPERAÇÕES RELATIVAS À CIRCULAÇÃO DE MERCADORIAS E SOBRE SERVIÇOS DE TRANSPORTE INTERESTADUAL E INTERMUNICIPAL E DE COMUNICAÇÃO -I.C.M.S.- (Value Added Tax V.A.T.):

This tax is levied by the state on the sale of products and the supply of services only, and NOT ON THE TRANSFER OF REAL ESTATE.

The ICMS tax rates vary from state to state and also depend on the type of operation.

INTERNATIONAL TREATIES ON TAX MATTERS:

Brazil has many treaties to prevent dual taxation in international matters. To date Brazil has entered into treaties with the following countries: Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Slovakia, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Holland, Norway, Philippines, Portugal, Spain and Sweden.