Brazil certainly represents a profitable opportunity to early investors aiming to gain the greatest returns possible on their investment. Some areas of north eastern Brazil around Bahia are currently attracting as much as 20% annual capital growth, other areas are also experiencing price rises at a healthy rate. Rental income from property is of great appeal to investors as high rental yields are already achievable from property located in the current tourist hotspots of Brazil. It is expected that, from the rental income attained during the peak season months alone (December to February), mortgage payments and bills can be covered.

Practical Advice:
Foreigners who want to buy property in Brazil first must acquire a personal tax number known as a CPF number – Cadastro de Pessoas Físicas.  This number is necessary as it is applied to every aspect of the purchase, and the future resale process.  To get a CPF you need a birth certificate translated into Portuguese by a certified translator and legalized by the Brazilian consulate in your home country.  With your birth certificate and passport you will make a trip to the Banco Do Brasil to formally apply for a CPF, where you will pay a small fee. The next day you will go to the Receita Federal to receive your assigned CPF number.  Your CPF card will be mailed to an address in Brazil within two months. (You do need a Brazilian address.).

When applying for your CPF number it is wise to obtain a lawyer who will assist you with the entire transferring process. Your lawyer should review the history of the title deed of the property you’re purchasing at the nearest Real Estate Registry Office – Cartório do Registro de Imóveis.  There are offices in major cities with multiple locations in each.  The process can take up to 3 months to complete depending on the complexity of the property’s history.  Following the search you should discuss with your lawyer their professional opinion regarding the security and validity of the title deed.  Get their opinion in writing to protect yourself in the future. You may want to find out more about title insurance at this stage as well as it is possible to insure the title deed of the property you purchase.  You insure against your transferring lawyer missing any issues that later come to surface.  For example, there being an outstanding financial claim such as a mortgage against the property.

Also, in regards to fees, note there is a 1% "import" tax on transfer of funds from abroad.

Tax Highlights:
Tax on Rental Income
Tax is charged on worldwide income for residents of Brazil at 15%, although some foreign tax relief and credits can be allowed under specific tax treaties. Mortgage interest is not deducted when calculating taxable rental income.

Capital Gains Tax
Non-residents are normally subject to a flat rate of 15% on gains from properties in Brazil. The following are exempt from capital gains tax:

• Gains from the sale of an individual property, provided a similar sale has not taken place in the previous five years and the total value of the sale does not exceed a specified amount (R$ 440,000 in 2004).

• Amounts received from the sale of assets with a sales price of less than R$ 20,000 per month.

• Gains from the sale of securities on the Brazilian public stock exchange, with a sales price of less than R$ 4,143.50 per month.

• Assets sold during a period of Brazilian residency, acquired during a non-resident period.

Note: Various tax treaties could affect the tax rates described above.

VAT (Value Added Tax)
The circulation of merchandise is subject to tax, as are transportation and communication services (ICMS). This is similar to value added taxes in other countries and is set at a rate of 18%, with more specific rates for some goods (for example, 25% on luxury goods).

Stamp Duty
Privately owned offices called Cartórios provide notary services as well as registers of real estate deeds. These cartórios charge anywhere from a few cents for simple certified copies, to thousands of Realis (R$) for property deeds. Included in the fees charged for real estate transfers are transfer taxes which vary from 2-4% of the declared value.

Municipal/Local Tax
Some municipalities may charge a service tax on certain businesses or real estate transfer tax (2% on transfers of real estate). An annual urban real estate tax for property owners is also applicable at approximately 0.6% of the assessed value of the property, but this will vary according to the municipality concerned.

Credits & Mortgages:
The mortgage market is underdeveloped in Brazil and foreigners cannot yet obtain a mortgage, so investors usually arrange alternative financing in their own countries or look to off-plan financing. However, Brazilian mortgages are due to be offered to foreigners in the near future as interest rates drop and banks develop their products.

Equity Release
If you have property in your own country and would like to borrow against this is an equity release plan.  If you are in your mid-50s or older and own your own home, you may be able to get a cash lump sum, a regular income, or both, by using an equity release scheme based on the value of your property.

Off-Plan Financing
Many off-plan developments in Brazil offer installment plans over between 12 to 60 months. The charges applicable vary according to developer and repayments are usually index linked. The developer can often offer the most competitive finance options to investors.
 
Before making a commitment, you should discuss your investment strategy with a lawyer, a reputable property agent with experience in the area and/or even a financial advisor.