BRAZIL Law and Practice Contributed by: Alberto Malta, Davi Ory, Ana Vogado and Maria Eduarda Amaral, Malta Advogados
2.10 Taxes Applicable to a Transaction In asset deals, the main taxes are: • ITBI; • a municipal tax of typically between 2% and 3%, which is generally paid by the buyer, although the authorities may require payment from the legal taxpayer regardless of contrac - tual allocation; and • income tax (IR) on capital gains or, for real estate inventory held by specialised compa - nies, on operational profits, including cor - porate income tax (IRPJ), additional contri - bution of social tax on net income (CSLL), social integration programme (PIS) and social contribution on billing (COFINS), unless the asset is classified as a non-current invest - ment. Notary and registration fees also apply, with costs varying by state and costs usually being borne by the buyer. Exemptions include IR exemption for individu - als selling a sole residential property up to BRL440,000 (with no prior sale in five years) and ITBI exemption on capital contributions of real estate, except when the recipient company’s core business is real estate. This issue is await - ing judgment by the STF (Theme 1,348). In share deals, ITBI does not apply as the prop - erty remains with the legal entity, but capital gains tax applies to the seller. Individuals are subject to progressive income tax rate (IRPF) of between 15% and 22.5% and legal entities to IRPJ and CSLL, depending on tax regime and deal specifics. PIS/COFINS are excluded when equity stakes are treated as permanent invest - ments and not core business assets. Despite ITBI exemption in share deals, tax authorities may challenge the transaction if it is deemed it lacks a legitimate business purpose, although this matter is still being debated by the judiciary.
2.11 Legal Restrictions on Foreign Investors Foreigners may acquire urban real estate in Bra - zil without specific restrictions, as long as they have a Brazilian individual registration (CPF). Residency is not required and acquisitions may involve residential or commercial proper - ties. However, purchases in sensitive urban areas, such as border zones or coastal lands, may require approval from the National Defence Council. For rural properties, restrictions under Statute No 5,709/1971 apply. These include: • residency requirement; • size limits based on rural tax modules; • INCRA authorisation for acquisitions between three and 50 modules; • Congressional approval for areas exceeding 100 modules; and • foreign ownership in any municipality may not exceed 25% of its area, with no more than 40% of that held by foreigners from the same nationality. These rules also generally apply to Brazilian companies under foreign control, despite some legal debate. Statute No 13,986/2020 intro - duced flexibility, allowing rural properties to be used as collateral and for debt settlement and made exceptions for lawful inheritance, subject to national security considerations.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Acquisitions of commercial real estate are typi - cally financed through bank real estate credit, CRIs and debentures. Large portfolios or com -
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