In this article, we will provide general information about ITBI, the Inter-Vivos Property Transfer Tax. Discover who must pay it, what are the rates, and the basic legislation regarding it.
Whenever a real estate owner sells his property or transfers the rights of it to another person, the part who receives it must pay a percentage of the transaction to the government.
When the real estate is inherited or donated, the person who receives it pays a tax named ITCMD (Imposto sobre Transmissão Causa Mortis e Doação). When the transaction is made only between alive people, the person who receives the ownership rights or buy the asset must pay the ITBI (Imposto de Transmissão de Bens Imóveis Inter-Vivos).
Under Brazilian law, both ITCMD and ITBI must be paid in transactions involving urban and rural properties. While ITCMD’s collection is in charge of the state governments, ITBI is levied by Municipalities that has jurisdiction over the place where the real estate is located.
ITBI: Who must pay it and what are the rates?
The collection of ITBI is mandatory whenever there’s an onerous transfer of immovable property in any capacity, whether it's a transfer of ownership or ownership rights or even the assignment of rights. Without paying this tax, it’s not possible to register the property in the name of the new owner at the public notary.
The calculation basis for ITBI is the assessed value of the real estate, which is the market value, but not necessarily the selling price. As stated above, ITCMD is a municipal tax, so it’s up to the Brazilian municipalities to establish the rates, legislation and payment deadlines regarding this tax.
Annually, the municipality determines the value of each real state, over which it is charged the IPTU (Municipal Property Tax). As a rule, the law considers that the calculation basis of IPTU is also the basis for calculating the ITBI. However, if the price the buyer paid for the property is much higher than the amount released by the municipality for purposes of IPTU, the government can provide that the calculation basis of ITBI be the sale value.
Each Brazilian municipality has a different aliquot for ITBI. To give an example, São Paulo city has its ITBI fixed at a rate of 2% over the assessed value of the real estate. The Federal Constitution does not provide for a maximum tax rate for ITBI, which means that each municipality can establish the rate it wants, as long as it is not characterized as confiscation effect (Article 150 of the Constitution). In contrast to what happens with ITCMD, which can be paid in up to 12 installmentes, ITBI must be paid in a single payment.
As regards the payment of ITBI, even if the parties have agreed otherwise, the current law states that the person liable for the ITBI is always the buyer of the property or the person who received the ownership rights. Foreigners and people that live outside Brazil are also obliged to pay ITBI, when buying properties located in the country.
ITBI is not levied over the transfer of property or rights that are incorporated to the patrimony of a legal entities through capital realization, or in the transfer of property or rights pursuant to an merger, incorporation, split-off or extinction of a legal entity, unless in these cases, the main business of the buyer consists in the purchase and sale of such property or rights, real estate rental or leasing.The non-levy does not apply if the purchaser has a legal entity principally engaged in the sale or lease of real property or the assignment of rights to purchase.