Despite complaints from the Brazilian population about the high rate of taxes imposed, municipal improvements are only possible because of these contributions. Here we take a look at the most common taxes charged by municipalities in Brazil.
Most Common Municipal Taxes
The municipalities in Brazil have 3 main taxes in common. All of them have the goal of generating money to solve problems in their respective municipalities.
IPTU stands for Imposto Predial e Territorial Urbano, which is Portuguese for Property Tax on Urban Land. It is a municipal tax charged on the property of urban real estate for housing, business or any other purposes.
Its rate is calculated on the value of the urban constructed area, which is determined by mass valuation. The basic unitary value per square meter of land and buildings will correspond to the value fixed in the Plants of Generic Values (Plantas de Valores Genéricos – PVG), elaborated through statistical processes and field work.
As IPTU is a municipal tax, the rates vary significantly from city to city, as well as the maximum number of installments permitted. This tax is paid every year, by the owner of the house, building or plot of land. In case of rentals, it is usual practice to include in the contract a clause stating that the tenant is obligated to pay the IPTU. Still, as far as the municipality is concerned, the legal debtor is the owner and they will sue the owner, if the tax is not paid.
10 Municipalities with the highest IPTU in Brazil
This data is based on the average IPTU per inhabitant in each municipality in 2013:
- Guarujá (São Paulo) - BRL 759,99
- Praia Grande (São Paulo) - BRL 696,48
- Santos (São Paulo) - BRL 570,17
- São Paulo (São Paulo) - BRL 441,91
- Niterói (Rio de Janeiro) - BRL 406,06
- Campinas (São Paulo) - BRL 323,01
- São Bernardo do Campo (São Paulo) - BRL 312,56
- Belo Horizonte (Minas Gerais) - BRL 290,60
- Campo Grande (Mato Grosso do Sul) - BRL 269,61
- Rio de Janeiro (Rio de Janeiro) - BRL 254,28
Property Tax Exemptions
The law determines that in a few cases there is no need to pay Property Tax. They are:
- Retired, pensioners and beneficiaries of the Brazilian Social Security
- Cultural entities
- Neighborhood associations
- Sports associations
ISS is short for Imposto Sobre Serviços, Portuguese for Brazilian Tax on Service and it is charged on the provision of services. Every municipality has a different rate for this tax, which is also known as ISSQN.
As the name implies, ISS collection is the provision of various services, listed by the federal government. There are almost 200 services on this list, relating to:
- Medical assistance and health
- Leisure and entertainment
This tax is also applied to services provided by foreign companies in Brazil, even if the service itself was initially provided abroad and completed in Brazil.
Note that the Tax on the Circulation of Goods and Services (ICMS) is not charged on services that are part of the list above. Some exceptions may apply, like the supply of food and beverages to political parties, or the supply of parts and pieces that will be used in the maintenance of engines. These are subject to the collection of ICMS instead of ISS.
Exemption of ISS
The law that regulates ISS also lists a few cases where the tax on Services is not charged.
- Services provided by the union, states, municipalities and the federal district, as well as by local authorities and foundations instituted and maintained by the Government
- Services provided by political parties, including their foundations, unions, non profit educational institutions and social services
- Books, newspapers, periodicals and the paper intended for printing
How ISS is calculated
According to Brazilian law, the tax will be charged based on the location where the company providing the services is established. This means that if a corporation is established in the city of São Paulo and is providing services for a company in the city of Santos, the ISS rate charged will be the one from São Paulo.
There are a few exceptions to this rule. If the service provider does not have a facility - commonly seen with freelancers, for example - the tax will be charged on the location of the freelancers residence.
However, a few types of services do not follow this rule. Sometimes, the tax might be charged from the place where the service is being rendered. Some examples are:
- Demolition of buildings
- General construction of bridges, roads, ports and airports
- Cleaning and drainage services
- Deposit, storage, loading and unloading of cargo
The maximum ISS rate set is 5% and the minimum rate is 2%. These rates are charged on the price of the services being provided.
Imposto sobre Transmissão de Bens Inter Vivos, ITBI,is a Property Transfer Tax related to the sale or transfer of the rights of the property to another person. When the sale is made, a percentage of this value has to be paid to the government.
When the real estate is inherited or donated as a result of death, the person who receives it has to pay a tax called ITCMD(Imposto sobre Transmissão Causa Mortis e Doação). However, if the transaction is a sale or transfer, the person who receives the ownership rights or buys the asset must pay the ITBI.
ITBI tax is applicable not only on transactions, but also on the transfer of property rights. Without paying this tax, it is not possible to register the property in the name of the new owner at the public notary. The calculation is based on the value of the property transferred, considering the value of the sale or purchase.
The rate of this tax varies from municipality to municipality. Usually, the rate applied on the value of the property is 2%. There are variations, such as in Porto Alegre and Fortaleza, where the rate reaches 3%. ITBI must be paid in full, not in installments.
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 applied to the transfer of property or rights that are incorporated to the patrimony of legal entities through capital realization, or in the transfer of property or rights pursuant to a merger, incorporation, split-off or extinction of a legal entity unless, 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 estate property or the assignment of rights to purchase.