Selling Taxes

[pietronz]

With intention to 1) re-invest 100% of the money received in sales back into residential property, 2) with not a single $R drawn from the capital as income (i.e. we have jobs and live in the UK) and 3) intentions to continue reinvesting the capital for the next 5 years:

What taxes are involved in selling a residential property under Brazilian individual, company?

Which scheme/structure is best to sell under to pay the minimum amount of tax considering the above plan?

By the way debzor - love ya work, Itamaraca looks amazing! I'm going to be keeping in touch with you for when I move to Brazil! :beerglass:

 

[debzor]

With intention to 1) re-invest 100% of the money received in sales back into residential property, 2) with not a single $R drawn from the capital as income (i.e. we have jobs and live in the UK) and 3) intentions to continue reinvesting the capital for the next 5 years:

What taxes are involved in selling a residential property under Brazilian individual, company?

Which scheme/structure is best to sell under to pay the minimum amount of tax considering the above plan?

By the way debzor - love ya work, Itamaraca looks amazing! I'm going to be keeping in touch with you for when I move to Brazil! :beerglass:

Hi Pietro

Thanks for the nice comments, but Itamaraca is amazing without me! Have we met?

Tax questions are always very subjective, but broadly if you reinvest the proceeds from the sale of the house here into another property within 6 months, you will not be liable for any part of the 15% CGT.

However other questions come into play. I assume you paid/are paying for everything direct from the UK? If you have no bank account here (and you cannot have one without residency),how are you going to receive the funds from a Brazilian buyer and hold ready for the next project?

If you do have an account, or are planning to sell to a foreigner, then this may be resolved. However do not get involved with setting up a company unless you have to - very expensive, bureaucratic and tax-costly.

 

[pietronz]

Thanks for your help! We haven't met, I have had a good read through the threads. Itamaraca looks very cool, I love the who island/city idea - very tropical, very paradise-like! Although I am from New Zealand, it's not so cool there now with all the earthquakes going on, city is destroyed - but the weather was very temperamental anyway!

At the moment I am doing this with my Brazilian partner, and her father is taking care of all that - we are using his account etc, we send him the money via GolTransfer and he is putting everything under his name, his account etc. This is ideal for us at the moment as we can't afford the time or money to go back and forward from Brazil. To be honest I have never been there, and can't wait to go - very rookie of me not to go there and check it out before I put my money down, but her father owns a company there, my partner and I are doing this together, and her father used to own a building company in Brazil and the US so he has a lot of experience in that field. Long story short, all under his name at the moment, until I go there for a holiday (ideally March) where my partner will set it up properly under her name, unless we can get a joint account pointed to her fathers address - I'll be avoiding as much beaurocratic BS as possible at this early stage until I am there - unless its gonna save me money/tax/time!

We buy land, build the house, then sell. Yes this is our first house we are selling, yes we will sell it under R$400k, yes we will be reinvesting the R$ within 6 months of selling - ideally into 2 properties, then sell those 2 and invest into 4 properties (or 2 larger ones) etc.. Our aim is to keep expanding like this for the next 5 years or so, from when on we will begin investing half the proceeds elsewhere (that's a convo for another day!).

So at the moment all I am concerned about is the taxes involved in selling this first house, and then within a years time the 2nd/3rd houses and so on. Baring in mind we will break the R$400k mark in a year or two. Would it be better for me to start a "firma" business, or a trust, or just keep it under my/our names? Also, no income will be drawn from this "business" as I will either be earning my bread and butter here in the UK - or in a small business I intend to open in NE Brazil when I move there.

 

[debzor]

Thanks for your help! We haven't met, I have had a good read through the threads. Itamaraca looks very cool, I love the who island/city idea - very tropical, very paradise-like! Although I am from New Zealand, it's not so cool there now with all the earthquakes going on, city is destroyed - but the weather was very temperamental anyway!

At the moment I am doing this with my Brazilian partner, and her father is taking care of all that - we are using his account etc, we send him the money via GolTransfer and he is putting everything under his name, his account etc. This is ideal for us at the moment as we can't afford the time or money to go back and forward from Brazil. To be honest I have never been there, and can't wait to go - very rookie of me not to go there and check it out before I put my money down, but her father owns a company there, my partner and I are doing this together, and her father used to own a building company in Brazil and the US so he has a lot of experience in that field. Long story short, all under his name at the moment, until I go there for a holiday (ideally March) where my partner will set it up properly under her name, unless we can get a joint account pointed to her fathers address - I'll be avoiding as much beaurocratic BS as possible at this early stage until I am there - unless its gonna save me money/tax/time!

We buy land, build the house, then sell. Yes this is our first house we are selling, yes we will sell it under R$400k, yes we will be reinvesting the R$ within 6 months of selling - ideally into 2 properties, then sell those 2 and invest into 4 properties (or 2 larger ones) etc.. Our aim is to keep expanding like this for the next 5 years or so, from when on we will begin investing half the proceeds elsewhere (that's a convo for another day!).

So at the moment all I am concerned about is the taxes involved in selling this first house, and then within a years time the 2nd/3rd houses and so on. Baring in mind we will break the R$400k mark in a year or two. Would it be better for me to start a "firma" business, or a trust, or just keep it under my/our names? Also, no income will be drawn from this "business" as I will either be earning my bread and butter here in the UK - or in a small business I intend to open in NE Brazil when I move there.

Until you start building a number of properties at the same time, you do not need to set up a limitada. Sounds like you have a plan - good luck, and maybe we will meet one day!

 

[pietronz]

Yeh fingers crossed - just a matter of getting the taxes under wraps. Is there a lot of difference in security between living in a condominium or not in nice north eastern beach front areas?

 

[debzor]

Yeh fingers crossed - just a matter of getting the taxes under wraps. Is there a lot of difference in security between living in a condominium or not in nice north eastern beach front areas?

Depends on two things - the area and your personal choice. If you are virtually alone during the week because you have chosen an isolated area just busy at weekends, then a condo or gated community might be sensible, in the same way as if your property is going to be empty for months at a time.

 

[growler]

but broadly if you reinvest the proceeds from the sale of the house here into another property within 6 months, you will not be liable for any part of the 15% CGT.

Hi Debzor, i'm no expert on the legal stuff in Brazil but i'm not sure the above is exactly as you say. Please correct me if i'm wrong but my understanding is as follows:

Example:
Buy for R$100,000 - sell for R$150,000 then buy for R$200,000 = No CGT.

Buy for R$100,000 - sell for R$150,000 then buy for R$125,000 = 15% due on R$25,000.

Buy for R$100,000 - sell for R$150,000 then buy for R$100,000 = 15% due on R$50,000.

This only applies to an individual. With a business taxes depend on the option you take. Lucro means you don't pay income tax on your personal spending providing you are using "profits" made. When you sell the property you would have to pay 5.93% of the purchase price.

Either way there is an additional tax relating to the Habit-se on conclusion of the build.

 

[pietronz]

Individual scenario: As far as I know yes that is correct, but u can only do that once
every 10 years.

Lucro business scenario: so if you buy a house for 25,000 and Sell the house for 100,000- you must pay 5.93% of 75,000 as tax- are any other taxes involved? Do u have to pay cgt tax or anything else on that 75,000? (this example is assuming there are no other expenses to offset against that profit)

 

[growler]

Hi Pietronz, if you buy and sell as a business you don't pay CGT.

The 5.93% is if you are using the "Lucro" method of paying taxes, I don't know how it works otherwise. It might be the same with just the personal income tax being different but an accountant could clarify this.

Obviously when you purchase there are the taxes etc which have to be paid, about 8% of purchase price.

 

[pietronz]

Know of any free accountancy advice in the uk?

 

[debzor]

Hi Debzor, i'm no expert on the legal stuff in Brazil but i'm not sure the above is exactly as you say. Please correct me if i'm wrong but my understanding is as follows:

Example:
Buy for R$100,000 - sell for R$150,000 then buy for R$200,000 = No CGT.

Buy for R$100,000 - sell for R$150,000 then buy for R$125,000 = 15% due on R$25,000.

Buy for R$100,000 - sell for R$150,000 then buy for R$100,000 = 15% due on R$50,000.

This only applies to an individual. With a business taxes depend on the option you take. Lucro means you don't pay income tax on your personal spending providing you are using "profits" made. When you sell the property you would have to pay 5.93% of the purchase price.

Either way there is an additional tax relating to the Habit-se on conclusion of the build.

You can also offset property improvement and renovation costs against CGT, so therefore if you invest the proceeds from a sale into another property you will not be liable to CGT.

This can only a broad guideline, as tax matters are very subjective, and the best advise is to talk to your attorney and accountant in Brazil.

 

[surfingbrazil]

Capital gain tax in Brazil

You can also offset property improvement and renovation costs against CGT, so therefore if you invest the proceeds from a sale into another property you will not be liable to CGT.

This can only a broad guideline, as tax matters are very subjective, and the best advise is to talk to your attorney and accountant in Brazil.

Let us clarify one thing.

The options comented here and above:

1/ "offset property improvement and renovation costs against CGT"
2/ Reinvest the proceeds of the sale within 180 day and not be liable for capital gain tax..

These apply ONLY to individuals ( no entities or companies ) residents of Brazil.It will apply to a non-Brazilian individual as long as he / she is a legal resident of Brazil.


I was going to quote the text but the "Receita Federal" site is still down due to a hackers attack, as you probably know.

Anyway the link is here:

Ganho de Capital

 

[pietronz]

Yeh that is clear. But is there another way to manage the properties to reduce the amount of tax? Eg. Run as a business, pay into overseas account etc

 

[JMBroad]

I'd recommend you speak to a tax specialist as each persons tax situation is unique and while people here on the forums may be giving you very valid advice for their situation, it may not apply to your situation and may actually induce you in error.

If it is pure investment, the most attractive tax situation would normally involve either investing into a fund or investing into a Brazilian company who will build the house for you.

Whether that would be viable for your particular situation depends on how much you are going to invest, whether you have the right contacts (potentially the most important part of the equation),how liquid you are right now and whether you have enough local knowledge to deal with a Brazilian company building your house for you (competes for first place with regards to importance).

Basically the reason being that corporate dividends (as long as they are paid out to companies not individuals) are tax free in Brazil so essentially you don't pay any tax on your profits in Brazil.

Having said that, it is probably also the riskiest way to earn money off real estate unless you have all of the above covered.

 

[JMBroad]

Yeh that is clear. But is there another way to manage the properties to reduce the amount of tax? Eg. Run as a business, pay into overseas account etc

Definitely avoid paying into an overseas account unless you are absolutely certain the deal is being registered with the central bank of Brazil.

 

[pietronz]

I meant People that are buying off me pay into an overseas account because I have heard that can be tax free? Not sure. All the help is greatly appreciated! Thanks all!

 

[debzor]

Let us clarify one thing.

The options comented here and above:

1/ "offset property improvement and renovation costs against CGT"
2/ Reinvest the proceeds of the sale within 180 day and not be liable for capital gain tax..

These apply ONLY to individuals ( no entities or companies ) residents of Brazil.It will apply to a non-Brazilian individual as long as he / she is a legal resident of Brazil.


I was going to quote the text but the "Receita Federal" site is still down due to a hackers attack, as you probably know.

Anyway the link is here:

Ganho de Capital

Actually I know of several foreign residents who have sold here without paying CGT, but, as already mentioned, it is an individual thing and not easily generalised here.