Buying Property in Brazil

Whatever your reasons for buying a property this is probably the first time that you have bought a property in Brazil or even abroad.

We have put this guide together to help you understand a little more about the process of buying in Brazil.

This guide is aimed at providing some basic information about buying in Brazil and tries to answer the major- ity of the common questions that we are asked about. Although we hope that you will find it useful it is im- portant to remember that it doesn’t cover all legal issues involved and certainly isn’t a step by step DIY guide to buying in Brazil.

It is still recommended that you seek advice from a professional before proceeding – after all we do this every day and have been doing so for many years and therefore know all the tricks and pitfalls that you may come across.

We also know the practical solutions to the problems that exist and also know how Brazilian Law interacts with UK law.

Buying property in Brazil faq’s

Is the legal system in Brazil the same as the UK?

No, they are very different, but there is an interaction between them when you buy a property in Brazil. That is why the best person to advise you on your purchase in Brazil is somebody who understands both Brazilian and UK law.

Do I need a lawyer to help me buy in Brazil?

Surprisingly this is the most common question that we get asked. No, you don’t – just like you don’t neces- sarily need a lawyer when buying in the UK. However, in reality you would always use a lawyer when buying in the UK so what is so different about buying in another country where you probably don’t have experience of buying before? For further reading.

I have been told that I don’t need a lawyer but need a Notary. Is this true?

The Notary is important in Brazil but tends only to get involved at the end of the transaction. His role is to carry out some basic checks at the documentation at the end and attend to the signature of the title deed and in some cases to register the property. He doesn’t normally advise on whether the contract is OK to sign, whether you should pay the deposit, who should own the property, and so on.

I have heard that there are problems with buying property in Brazil. What is the situation?

Certainly there are potential problems when buying in Brazil, just like there can be in any country including the UK. Most of the potential problems that you read about can be avoided by using common sense and by instructing an independent lawyer to advise you on the purchase. We often see people with problems with their property and they invariably tell us that they didn’t use a lawyer or used the lawyer given to them by the seller or estate agent.

Are the costs more in Brazil than in the UK?

Yes, the total costs in addition to the purchase price are higher than you will be used to in the UK. It is therefore important to factor these into your budget from the beginning. Luckily property prices are current- ly rock bottom which not only reduces some of these costs but also makes the purchase price much cheaper. However, it depends on which property you would like to purchase, once the prices are not standard.

Costs and timings

The total cost of buying in Brazil could be higher than in the UK. The costs for a purchase include ITBI (Imposto sobre Transmissão de Bens Imobiliários), to be paid in the City Hall in which the property is locat- ed , - and costs around 2,5% of the property’s value - the registry of the property, to be paid in the Land Reg- istry Office, and the Notary Public Fees.

You may be asked to sign a reservation contract or a Promissory Purchase and Sale Contract, although it is not obligatory, and pay a small deposit, which is commonly called a “Sinal” or “Arras” (advance payment). It is usually celebrated, since it provides safety to both parties involved in a purchase. Signing this contract is the most important sign that you wish to proceed with the property purchase, because a payment is made and the vendor is also obliged not to proceed with the sale to other person in the meantime.

After that you would work towards a full purchase contract and pay typically around 10% deposit. That con- tract commits you to buy the property.

On a new property you may have to make stage payments throughout the course of construction. The balance is paid upon signature of the title deeds and registration.

Mortgages

There is a possibility to mortgage the property in Brazil. It has advantages and disadvantages, but getting it wrong can cost you dearly, so take advice on this.

If you wish we can put you in contact with mortgage brokers either in the UK or in Brazil. We do not re- ceive a commission for doing so and are not tied into a particular broker.

Obtaining a mortgage—also called “home equity” - is a very recent operation in Brazil. If you are buying a property in Brazil that already has a mortgage on it then it may be possible to take over that mortgage from the current owner.

This is often seen as an easy way of obtaining a mortgage but you should be aware that that mortgage might have been the right one for the seller but may not be the best one for you. For further reading.

Surveys

f you are buying a property we would always recommend that you obtain a survey. If you obtain a mort- gage the valuation carried out for the mortgage company, usually a bank, will only look at whether the prop- erty is worth the amount you have negotiated.

Any defects in the property which do not affect the value will not normally be shown on the report. A sur- vey will rate the condition of all permanent structures and will highlight any important problems that could affect the property value. Depending on the survey this may also give advice as to future maintenance. The survey should reduce the chance of discovering any nasty surprises with the condition of the property once a purchaser has bought the property. If there are any defects the survey will help the buyer negotiate the price or require certain works to be carried out before the property is purchased.

The survey may also reveal that certain works have been carried out or highlight rights that are neces- sary for the property which we can investigate before the property is purchased.

Currency

Buying any property generally involves a significant amount of money.

When you are converting from one currency to another the difference between one exchange rate and another can literally make a difference of thousands of pounds on your purchase.

Do not underestimate the difference that a good exchange rate can make, specially in which concerns reais and pounds. We know people who have sold properties and have made more money on the exchange rate difference than they have on the sale of their property.

We are not banks or currency dealers, but would recommend that you investigate the cheapest way of sending your money abroad. If you would like we can put you in contact with currency dealers that we know will give you a good exchange rate and a good service.

Currency dealers have increasingly sophisticated products. You can agree rates for the future. You can get them advising you when to buy or agreeing to buy for you when the rate hits a certain level. You can even agree a fixed rate for longer periods of time if you make regular payments abroad (for example for a mortgage or moving your pension money).

We work with currency dealers who can give you a good exchange rate for your purchase and whom we have known for years. We do not receive a commission for introducing them to you.

Powers of attorney

A Power of Attorney is a document which allows somebody to do something on your behalf.

If the title deeds are not being signed in the UK then often clients prefer to grant a Power of Attorney to somebody to sign the title deeds on their behalf.

This has several advantages:

You are normally busy and haven’t time to go out to Brazil to sign the title deeds.

Signing title deeds is not particularly exciting and most people prefer to use their time off enjoying the prop- erty rather than signing pieces of paper.

It normally works out cheaper than you going out to Brazil to sign.

You should only give a Power of Attorney to somebody that you trust as they allow that person to do things legally on your behalf.

In Brazil Powers of Attorney have much wider faculties than we are used to in the UK and often have very general clauses in them “just in case”. We try and limit the Powers of Attorney down as much as possible whilst still allowing the person appointed the freedom to do what you need them to do.

The cost of a Power of Attorney is not included in our standard fees as not every client needs one. For further reading.

Fractional ownership

Fractional Ownership is not a new concept and has been around for many years – although back then we called it Co-ownership.

Put simply Fractional Ownership is where several people buy a property together. This can be members of a family, friends, work colleagues or even complete strangers.

You buy a share in the property and also share the running costs.

The best Fractional Ownership schemes are those where the cost of buying is closest to the value of the actual share in the property – i.e. the ones where there are not huge margins built into the sale.

Timeshare is a type of Fractional Ownership but Fractional Ownership is not necessarily Timeshare as there are strict definitions as to what Timeshare is.

CPF

The CPF (Cadastro de Pessoa Física, which translated literally is your Foreigner’s Record Number) is your Taxpayer Registration Number in Brazil and is obligatory for the purchase.

If you are married, your partner should also own a CPF. If you don’t have a residence permit, the CPF is only applicable to real estate purchases.

There are several times when you are likely to be required to produce your CPF number;

• When you buy a property
• Opening a bank account
• Dealing with the utility companies
• Taking out insurance
• Dealing with the tax authorities
• Buying or selling shares, bonds and stocks
• Buying a car

At the moment you can apply for your CPF personally, by your representative or business manager. We will therefore advise you how this is working at the time that you contact us.

After obtaining the CPF, you are able to consult a legal proof of Registration and inscription in CPF.

Who should own the property?

This is probably the most important decision that you can make. Getting this right can save you thousands in costs and taxes. Getting it wrong can be an expensive mistake.

The way that you would buy a property in your home country is not necessarily the best way to buy in Brazil so don’t assume that you can adopt what you have done here to your purchase in Brazil. Acquiring a proper- ty in a different country is always different and the rules for that acquisition may also be different.

There are many options – ranging from personal ownership to company ownership but there is no “one size fits all” solution that works for everybody.

Your circumstances and priorities are different from the next person. We are able to look at your circum- stances and your priorities and advise you who should own the property based on that information. The so- lution may not necessarily be immediately obvious.

When deciding on the best form of ownership we would need to take into consideration both Brazilian and UK tax and also a range of other circumstances such as your plans for the property in the future. For further reading.

Documents required

If you are buying a property, it is essential that you check if you have all the documentation required to present in the Notary, namely:

• Identity Card and CPF (including your partner’s);
• Marriage Certificate (if you are married, divorced or separated);
• Prenuptial agreement (if there is one);
• Death certificate (only if you are a widow or a widower);
• Proof of address;
• Job proof documentation;
• Power of attorney.

For urban property

• Certificate of Registration updated at the signing of the deed;
• Certificate of Receipt of Real Estate Tributes;
• IPTU (Urban Land and Building Tax);

For rural property

• Certificate of Registration updated at the signing of the deed;
• Certificate of no-tax liabilities;
• Certificate of the registration of rural property (CCIR);
• Declaration of T ax on the Territorial Rural Property (DITR);
• Proof of payment of T ax on the Territorial Rural Property (ITR).

Exemption of Income Tax

You are subject to Income Tax (Imposto de Renda de Pessoa Física).

However you are exempt if you are retired and if you suffer from severe life-threatening illness or handicap, such as AIDS, heart diseases, blindness or deafness.

Please note that if you aren’t retired, even if you suffer from any illness or handicap, you are not exempt.

Miscellaneous

Water and Electricity

It is important to check that there is a connection and that the charges are paid up to date.

If you are buying a new property we will need to check that the property has the appropriate Habitation Certificate which allows the services to be connected.

Land Registry (Registo Predial)

Almost all land and properties in Brazil are now registered.

We would obtain a search at the local Land Registry for office copy entries of the previous owner’s deed which will show who the registered owner is and whether there are any charges on the title.

The Land Registry has the history of all the events concerning certain property. Once you become the own- er, you will be required to proceed and to register this status.

Town Hall (Prefeitura)

Your property will also be checked at the Town Hall to make sure that the ITBI (Imposto sobre transmissão de bens imobiliários) has been paid up to date.

By owning a property in Brazil you will of course be responsible for the taxes that are due on the property such as ITBI.

Wills

Moving in and Wills

Just like back home you will need to arrange to have the utilities and services in your name and often have to set up a direct debit at your Brazilian bank to pay the bills. You also need to inform the Town Hall that you own the property.

Owning a property means that it will become part of your estate once you die. The rules for inheriting a property located in Brazil are different from the UK.

In general, we can advise you on the various different options regarding your Brazilian Will. It is possible to have two wills – one in Brazil covering your Brazilian assets and one in the UK covering your other assets. Both Wills need to be drafted carefully to make sure that they do not revoke each other.

You can leave your assets in Brazil to somebody with a UK will but this doesn’t make sense – the cost of the subsequent inheritance will be more and it is possible that you will inadvertently cause inheritance tax prob- lems.

The cost and extra complications of leaving no Will at all is great and should be avoided.

Whilst as a foreigner you do not have to follow the same rules that Brazilian people do in terms of who you have to leave your property to, it often makes sense to do so as this can save your beneficiaries huge amounts in tax.

A Brazilian Will can be prepared and signed in your local area or in our offices – there is no need to go to Brazil. We can arrange for the registration of your Will at the Central Wills Registry in Lisbon.

The Brazilian Will can be signed in the UK or in Brazil. For further reading.

Inheritance

Brazilian Inheritance Law states that when you die your properties will be shared among your heirs according to the law of your country of residence.

A “foreigner” can make a Brazilian Will leaving his own property to the person of their choice even if they are resident providing they make a Will saying so. This Will must contain a declaration that their personal law is governed by the principle of free disposition of property by testament.

Generally speaking a valid Brazilian will is sufficient to dispose of the estate as you wish. In Brazilian law, a ‘reserved portion’ of the estate must go to the necessary heirs. These are the descendants, ascendants, sur- viving spouse and collateral relatives. If the necessary heirs exist, half of the inheritance is reserved for them. The other half can be freely distributed in a will.

In the absence of any relative, or in the event of waiver of inheritance, the property is transferred to the Mu- nicipality or Federal District, if located in their jurisdictions, or to the Federal Government, if located in a federal territory.

Inheritance tax, or Causa Mortis Transfer of Real Estate Property Tax and Donation of Any Type of Property or Rights (ITCMD), which is a state tax levied on the transfer of real estate upon death or through a dona- tion on property or assets in Brazil, has to be paid in Brazil. The property or assets also have to be declared back in the UK. States are authorized to tax inheritance at rates of up to 8%.

The ITCMD is collected by the State Secretariat of Finance of each Brazilian state. The tax can be paid on a single installment or in several installments. Most states give the taxpayers the option of paying ITCMD in up to 12 monthly installments.

When an inheritor receives a property which cannot be owned by a foreigner, Brazilian legislation does not establish a period within the property must be sold.

There are tax exemptions if:

• The property, rural or urban, is less than 5 000 State Fiscal Unit and the family lives there;
• It is the only property owned by the transmitter, and is destined to the spouse or descendants;
• Bank deposits and short term investments do not go beyond 1 000 SFU;
• The total value of assets is less than 7 500 SFU.

Ongoing obligations

After you inherit a property in Brazil there are ongoing obligations that you need to meet (assuming that you wish to keep the property):

Insurance

It makes sense to insure your property and its content.

Real Estate Tax (Imposto sobre Transmissão de Bens Imobiliários)

Non payment of ITBI can lead to legal proceedings being taken against you by the tax authorities and an em- bargo being placed on the property.

Utilities

You will be responsible for the utility charges – electricity, gas, water sewerage, rubbish collection etc. from the time that you own the property.

Community Tax (Taxa de Condomínio)

You should pay these otherwise the property can be confiscated and auctioned in order to settle the debt.

Income Tax

If you are non-resident you must declare any income you have earned in Brazil. This applies even if you re- ceive this income by renting out to people from your home country and the money never “touches” Brazil.

Even if you do not receive any rent from the property it is assumed that you have received some sort of ben- efit and you are taxed accordingly upon this.

You will also normally have to declare this income in the country where you are tax resident and also pay tax in Brazil, since there is no Agreement celebrated with the UK in order to avoid Double Taxation.

Tax residence

The ongoing taxes that you pay when you buy a property in Brazil will normally depend on whether you are tax resident there or not.

Tax residence is a determined by a number of factors:

How long you spend in that country? Is it 184 days or more a year (not necessarily continuously)? If so you are likely to be tax resident there.

Is your main home there? If it is then you are likely to be tax resident there.

Is your immediate family (spouse and dependent children) based there? If so, you are likely to be tax resident there.

Is your main economic interest there? If so you are likely to be tax resident there.

If you do become tax resident in a country then you will normally stop paying taxes in your home country and start to pay taxes in the new country.

Do not be tempted to have selective amnesia when it comes to declaring taxes - the authorities in both Bra- zil and the UK are clamping down on people who do not do things properly.

Sometimes you should declare something for tax purposes in one country and also in another. Brazil and the UK do not have a Double Taxation Agreement which means that you will have to pay tax twice.

You also must declare, as soon as you are tax resident, the Declaração de Ajuste Annual (which translates to an Annual Income Tax Return).

Fees and taxes

IVA (VAT) is payable by the purchaser where the vendor is considered a developer who pays IVA and / or this is the first time that the property has been sold / transferred.

The VAT rate is between 17% and 19% .

Transfer Tax is payable if the property is a resale (second transfer). A real estate transfer tax is due upon the transfer of title to real propriety. The tax rate varies from 2% to 6%, calculated, roughly, on the sales price.

Capital Gains (Mais-Valias) is a tax based on the increase in the value of the land since the last transfer. Technically the vendor pays this although often it is agreed that the buyer will pay this. This is not normally a huge amount. Capital Gains derived by a non-resident on an investment are subject to progressive rates rang- ing from 15% to 22%.

ITBI (Imposto sobre Tranmissão de Bens Imobiliários) - This tax is annually due by the owner of the Brazilian property and is paid to the Brazilian Tax Authority.

Real Propriety Tax - This tax is collected by the Municipality where the propriety is located and is calculat- ed on a deemed “sales price” of the propriety. The tax rate varies by municipality, but may be estimated in the range of 0.3% to 1.5%. The Rural Propriety Tax is an annual federal tax assessed on the ownership of rural propriety at rates ranging from 0.03% to 20%, depending on the region and the utilization of the propri- ety.

Stamp Duty - When purchasing property you will be required to pay a stamp duty on the purchase docu- ments which vary from 2% to 4% of the declared value of the property.

Our charges

We charge 1.5% of the purchase price subject to a minimum of £2,250 plus VAT. If the property title is de- fective or unexpected additional work is required then there may be additional charges. We would inform you before incurring this cost. In addition to our fees there is also Notary fees, Land Registry fees and the like. We will be able to give you an idea as to the cost of these when we know more about the transaction. Those costs will be the no matter which legal firm you use to assist you.

Our charges include;

• Legal advice on the terms of your offer to purchase
• Searches at the Town Hall
• Searches at the Land Registry
• Obtaining certificate from the Community of Owners (if appropriate)
• Checking the legal status of the property and the seller’s right to sell
• If appropriate checking the guarantee provided by the vendor
• Preparing a report on our searches and advising you on the purchase
• Arranging the signature of the title deed
• Arranging payment of the relevant taxes
• Arranging registration of the property at the Land Registry
• General hand holding and advice throughout the transaction

Useful terms

Buying in Brazil checklist