Introduction
In the 21st century, not only being the largest economy in South
America, Brazil is also starting to become a power in the
world.
In economic and political terms, the country has been slowly
gaining economic and political stability since returning to
democracy in 1985. Consequently, the country's real property sector
is strongly driven by both locals and international property
buyers.
Foreign capital enters freely and since 1995 has received
national treatment. Foreign investment is restricted in certain
sectors, including rural and border property.
Foreign exchange accounts are subject to limited restriction.
The central bank approves outward direct investment in some cases,
including transfers and remittances, where it has broad
administrative discretion.
Due to the complex tax regime, the exchange control and the
language barrier, international property buyers might find the
property buying process in Brazil difficult. This buyer's guide is
to provide you some useful information relevant to acquiring real
properties in Brazil.
Legal Guide
LAW
Brazilian law is based on Roman codes and derives from
Portuguese civil law. Being a civil law country, Brazilian's legal
system is based on status. Under the terms of article 92 of the
Federal Constitution, the following are the bodies of the Brazilian
Judicial Branch:
- the Supreme Federal Court
- the Higher Court of Justice
- the Federal Regional Courts and Federal Judges
- the Labor Courts and Judges
- the Electoral Courts and Judges
- the Military Courts and Judges
- the Courts and Judges of the States and of the Federal
District
In respect of the real estate sector, following are some of the
relevant laws:
- Constitution (Article 5, 170, 186 are most relevant to property
rights)
- Civil Code (Law 10.406)
- Agrarian Reform law (Law 8629 of 25th February 1993)
OWNERSHIP & RIGHTS
Non-residents (individuals or entities) may acquire real estate
property in Brazil under the same conditions & procedures as
applied to Brazilian nationals. However, special conditions may
apply to non-residents, referring to the purchase of property
located near the coast or frontiers or certain specific areas
designated as being of national security. Rural areas may be
acquired by non-residents, according to specific law dispositions,
i.e. if they come to live in Brazil within three years from the
date of acquisition. In addition, rural properties acquired by
non-resident companies shall be destined for the implementation of
agricultural, industrial or settlement projects and these
activities must be related to the companies' purposes.
In respect of real estate properties, Brazilian law provides two
broad categories– the right of possession and the right of
ownership.
Right of possession – a personal right to exercise certain
powers of ownership such as the right to claim, maintain or recover
the possession of property, the right to receive its fruits
(including rents and other income generated from the property), the
right to be indemnified for necessary improvements carried out, and
the right to retain the object.
Right of ownership – the most important of all property rights
and is exclusive. Such right is defined by the Brazilian Civil Code
as the right of an individual to use, enjoy and dispose of his
goods, and to recover them from whoever may have taken possession
of them unlawfully. The ownership may be shared by more than one
person, as know as the co-ownership or condominium, which is when
each of the co-owners of an asset has all the property rights in
relation to an ideal part of such asset. The right of ownership may
be restricted by public interest or in respect for the property
rights of third parties.
BUYING PROCEDURE
The buying procedure for an off-plan property is in general as
follows:
Reserve the property
Once you have chosen
your ideal property, a reservation agreement is to be signed with
the seller and a reservation deposit needs to be paid (will form
part of the purchase price).
Due Diligence
Before signing the
preliminary purchase contract (off-plan property) or property sale
and purchase contract, it is important that to carry out a due
diligence check on the seller as well as the subject property. The
due diligence checklist may include:
- the company registration certificate (if the seller is an
entity) or proof of seller's identity (if the seller is a private
individual)
- proof of a personal who is duly authorised to sign all legal
documents (if the seller is an entity or an attorney of the
seller)
- the title certificate for the land
- the planning permission/consent (off-plan property)
- the building licence (off-plan property)
- the administration certificate
- all other relevant permissions for the commencement of the
project (off-plan property)
- any lien, debt, development finance, or encumbrances against
the land and/or the project
- at least one of bank guarantee, insurance and/or assurance
ensure the completion of the project or an escrow system to provide
security for the buyer's property payments (off-plan property)
- an independent quantity surveying (QS) system during the
construction period (off-plan property)
The above due diligence check is more appropriate to be done
through a local law firm or conveyancing lawyer.
Cadastro de Pessoa Física (CPF, i.e. Tax
Code)
This is a fiscal number must be obtained if you
have dealings within Brazil (even if you are not a permanent or tax
resident). This number is a legal requirement for all foreigners
purchasing property as it enables the foreign investor to be
uniquely identified for taxation and title purposes.
Exchange Contract
Before singing
preliminary purchase contract (off-plan property) or property sale
and purchase contract, buyers are suggested to consult a local law
firm or conveyancing lawyer on analyse the risk, any unfavourable
terms of the contract. Upon signing of the contract, first
instalment/payment is often required.
Singing the Title Deed
The property
transaction is finalised with the buyer and seller signing the Deed
of Sale before a Notary (OfÍcio de Notas o Cartorio). The Notary's
duty consists of identifying the buyer and the seller, and ensuring
that all legal requirements have been met, and that the amount due
to be paid has been settled.
Taxation (for individual non-residents)
TAXATION When buying/acquiring property
| category |
sub-category |
tax/fee rate |
scope/remark |
Imposto Sobre Transmissão Intervivos
De Bens Imóveis (ITIV, i.e. Transfer Tax) |
|
between 2% and 6% |
This is a Tax assessed by the municipalities which is due when
real estate is transferred. The rate is based on 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. |
| Comments About Imposto Sobre Operações Relativas À
Circulação De Mercadorias E Sobre Serviços De
TransporteInterestadual E Intermunicipal E De
Comunicação (ICMS, i.e.
VAT) |
|
N/A |
|
| Notary Fee |
Notary fee
Registration fee (admin expenses)
|
approx 1.8% (in certain party of Brazil can reach
3%) |
Notary fee – approx 1.16%
Registration fee – approx 0.65%
|
TAXATION when owning/holding property
| category |
tax/fee rate |
scope/remark |
Imposto De Renda Pessoa Física
(IRPF, i.e.
Income Tax) |
25% |
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. |
| Imposto Predial E Territorial Urbana (IPTU, i.e. Urban
Real Estate Tax) |
|
This is an annual tax on urban property charged by the
municipalities. Thistax must be paid each year, in one payment made
between January and August for the following year. The tax rate
will vary between municipalities and town councils but normally
this is a very small figure. |
| Imposto Sobre A Propiedade Territorial Rural (ITR,
i.e. Rural Real Estate Tax) |
|
This is an annual tax on rural property charged by the
municipalities. The tax rate will vary between municipalities and
town councils. |
TAXATION when selling/disposing property
| category |
tax/fee rate |
scope/remark |
|
Capital Gains Tax (CGT)
|
15% |
Capital gains recognised by individuals on the sale of
real property will be subject to Brazilian withholding income tax
at 15% rate applicable to foreign investors who are not
resident/domiciled in a tax haven. The gain is determined as the
difference between the sales price and the acquisition cost duly
reported on the seller’s annual income tax return. |
| Imposto Sobre A Transmissáo "Causa Mortis" E DoagáoDe Bens E
Direito (ITCMD, i.e. 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
TransporteInterestadual E Intermunicipal E De
Comunicação (ICMS, i.e. VAT) |
N/A |
|
1. LLRX, 2001, Features - Doing Legal Research in
Brazil [Online] Available at: http://www.llrx.com/features/brazil.htm (accessed
on 27 August 2008)
2. Brazilian Chamber of Commerce in Great Britain, 2008,
Trade Info, Legal System for Purchase of Real Estate,
Acquisition of Real Estate in Brazil [Online] Available At:
http://www.brazilianchamber.org.uk/index.asp?id=35 (accessed
on 27 August 2008); PricewaterhouseCoopers, Going Global,
Tax and legal aspects of real estate investments around
the globe [Online] Available at: https://pwc.com/images/soacat/brazilgrets2004.pdf (accessed
27 August 2008)
3. Brazilian Chamber of Commerce in Great Britain, 2008,
Trade Info, Legal System for Purchase of Real Estate, Acquisition
of Real Estate in Brazil [Online] Available at: http://www.brazilianchamber.org.uk/index.asp?id=35 (accessed
on 27 August 2008)
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