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Acquiring real estate is a complex operation in all parts of the
World, especially if you are buying as a foreigner and you are not
aware about the rules of law, as well as some practical aspects.
This short text is a quick reference to some topics that must be
analyzed when doing business related to real estate in Brazil.
2) Brazilian Market
Before entering the legal topics, it is important to mention
that the Brazilian Real Estate market has been developing rapidly
in volume and quality. With a vast territory of continental
proportions, investment opportunities are blooming.
Another attractive item is the accelerated expansion of real
estate financing instruments offered to the real estate market both
residential and corporate.
Besides direct investment in real estate, there are other
investment alternatives such as private equity in real estate
developing corporations, real estate funds and real estate
receivables funds. It is important to inform that the mentioned
funds are fully regulated by the Brazilian Securities Commission
(CVM).
3) Brokerage
When speaking about professional assistance in the real estate
market, we promptly think about brokers and, sometimes, lawyers as
well. In Brazil, real estate brokers have to be registered before
the local broker association and the profession is ruled by federal
law.
Most real estate operations involve brokers. But, it is
important to mention that it is not legally required. It is also
important to know that whenever a broker is involved, the seller
must pay the brokerage fee that can go up to 6%, but most brokers
agree to negotiate the fees. There are many well known brokerage
companies that follow the legal requirements at their operations,
but the assistance of a lawyer to review and prepare the documents
is always recommended.
4) Registration and ownership
The Brazilian system of real estate registration is somewhat
bureaucratic but is designed to ensure the ownership to the one
that registers. If the sale is not registered before the Real
Estate Registry, there is risk exposure to the transaction. The
bottom line: if you buy make sure to register! Registration fees
are charged according to the value of the property involved and the
taxation of real estate transfer is ruled by the city government.
In Sao Paulo City, the tax rate is 2% of the transaction value.
5) Legal due diligence
Buyers need to be aware of any existing debts of the seller or
of the real estate to be purchased. Besides the due diligence of
the property, it is very important to perform a due diligence of
the seller (person or legal entity), because some debts can follow
the property acquired. For instance, lawsuits involving labor
rights and tax authorities may be tagged to the property. If the
buyer does not adopt certain precautions, he or she may end up
having to pay for debts of the original seller. This is why a full
legal investigation is mandatory before any real estate
transaction.
6) Tax issues – registration and
planning
The Federal Revenue Service of Brazil enacted a ruling that
requires foreigners to obtain a registration called CPF (Cadastro
de Pessoas Físicas), for individuals, and CNPJ (Cadastro
Nacional de Pessoas Jurídicas) for legal entities.
According to this ruling, the Brazilian Taxpayer Registry (CPF
or CNPJ) is mandatory for individuals or legal entities residing
abroad who own real estate properties in Brazil. Other assets are
also subject to the mentioned rule and registration, such as: i)
vehicles; ii) vessels; iii) aircrafts; iv) stock shares; v) banking
accounts; vi) financial market investments; vii) capital market
investments.
Documents and legal requirements may vary depending on the
specific case.
Also all registered real estate operations are subject to real
estate transfer tax. The rates vary from state to state and in the
state of São Paulo the tax rate is 2%, as mentioned in item
2 above, and are usually paid by the buyer.
The tax burden issue is always brought up late in real estate
transactions, usually on the closing day. But for maximum
efficiency and outcome, tax planning is always recommended.
7) Remittance of the investment to Brazil –
Registration before the Central Bank
Foreign persons and legal entities bringing capital to invest in
Brazil need to register the transfers before the Central Bank of
Brazil (BACEN).
The registration will allow the future legal return of the
capital and eventual gains earned in Brazil.
8) Conclusion
We hope to have brought up and called the attention to some
aspects we think that need to be considered when investing in real
estate in Brazil.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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There has been a large amount of real estate investments in Brazil in the last years. Not only large investors have been appreciating the hotel and shopping center areas, small investors have been viewing the Brazilian environment as a great opportunity for retirement plans.
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