Getting to grips with taxes in Brazil
Buying a dream property in Brazil, whether it is as a second home or a money-making buy-to-let investment, is an exciting venture. However, before settling down in your new home or starting to search for tenants, it is important to familiarise yourself with some of the taxes you will be subjected to as a Brazilian property owner.
VAT
While most people would like to forget all about the existence of taxes, when investing in property abroad it is important to keep them in mind and research what you will be liable for so you can budget accordingly.
Like here in the UK, people investing in new-build property in Brazil will be subject to a value-added-tax (VAT). In Brazil, VAT is levied on the majority of products and some major services. VAT levels are determined by the state and known as ICMS.
ICMS is imposed on the circulation of goods and services, including imports, provision of interstate and inter-municipalities’ transportation and communications services. Rates vary from seven per cent to 25 per cent depending on the state the goods are purchased in. For example, in Sao Paulo and Rio de Janeiro the average rate is 18 per cent.
A federal value-added tax known as IPI applies at varying rates to a range of manufactured goods and products when they leave the factory or are imported. The rates of tax vary depending on the kind of goods.
Capital Gains Tax and Tax on Rental Income
One of the first things anyone buying a Brazilian property, whether they are renting it out or residing in it, needs to get to grips with is the taxes they have to pay on any income earned in the nation.
Anyone not living and working in Brazil but who owns a property in the country is still subject to certain taxes on income derived from either renting out or selling their Brazilian property.
Non-residents who own rental properties in Brazil will be charged tax on their rental income at an average rate of 15 per cent, however, it can be lower or higher depending on the amount of rent charged. Any non-resident taxpayers are only subject to tax on their Brazilian-source income.
Brazilian property owners will also be charged capital gains tax of 15 per cent when they sell their property. However, this tax is waived if the individual reinvests in Brazilian property within a specified time-frame. People could also be exempt from capital gains charges if they have owned the real estate for more than 20 years or if it is their sole estate.
Inheritance wealth tax
Inheritance and wealth taxes are a hotly debated topic in many countries and one of the major benefits of investing in property in Brazil is that the nation does not impose any such charges.
However, some states may impose a death transfer and donation/gift tax. For example, popular property investment hot spot Sao Paulo introduced an inheritance and gift tax in January 2001.
According to Global Property Guide, while they are alive, Brazilian property owners are free to gift their property to anyone they wish, with a few caveats, All taxes on the residence must be paid and up to date, the transfer must be made by a Notary Public and any gifts made between ascendants and descendants or spouses are viewed as an advance payment of inheritance.
Brazilian taxes and the government structure
Brazil is split into 26 regions and one federal district, with each of these states having variations in the amount of tax paid and the means it is collected by.
Anyone purchasing property in Brazil is advised to conduct thorough research into the various areas to ensure they are clear on the regulations of each region.
Commenting on the taxation system in Brazil, a male staff member from the commercial section at the Brazilian embassy said that it can be confusing, especially for foreign investors.
"That is why for every enquiry that we have on the subject in the embassy we advise them to perhaps get in touch with a lawyer," he said, adding that without extra guidance it is easy for people to get confused.
"Anywhere in the world that you invest, you should try to have some legal representation which can put you in the picture about these matters."
