Municipal taxes in Brazil
Municipalities in Brazil have an independent Executive Power and an independent Legislative Power; municipalities have competence to create certain municipal taxes (read also about federal taxes and State taxes in Brazil).
Municipalities can create a social contribution (most didn't, though), provided that all proceeds of the contribution are directed to social security payments (read more about taxes and contributions).
Article 156 of the Constitution assigns competence for municipalities to create the following taxes:
- IPTU : taxes on the property of urban buldings and urban real estate;
- ISS : tax on services;
- ITBI : tax on transfers of real estate rights.
IPTU is paid every year, by the owner of the house, building or land plot. In case of rentals, it is usual practice to include in the contract a clause passing to the tenant the obligation to pay IPTU; however, for the munipality, the legal debtor is the owner (the municipality will sue the owner, in case the tax is not paid).
IPTU applies to urban (i.e., in cities) buildings; for rural properties, a federal tax called ITR (Rural Real Estate Tax) applies.
The tax is calculated based on real value of the real estate (and not on the account value registered on books); the city governments maintain a database with approximate values of real estate. Every year, city governments send an invoice to taxpayers.
ITBI is paid only when a piece of real estate is sold, and the transaction is registered with the official notary (such registering is mandatory to formalize the change of property of real estate in Brazil).
If a real estate changes ownership because of death of former owner, then the applicable tax is a federal tax called Causa Mortis Tax (Tax on Heritages).
ISS is applicable to services, except those services covered by State tax ICMS.
ICMS comprises some important services, such as Telecommunication Services and Electricity Transmission.
ISS comprises all services, except the selected few which are comprised by ICMS. So, hotels, doctors and hospitals, private schools and colleges, entertainment business (cinemas, sports events, etc), liberal offices (engineers, accountants, marketing, etc), all pay ISS.
ISS taxes vary from city to city. So, in certain cases, businesses are known to incorporate in specific cities, so as to take advantage of lower ISS rates. For example, the municipality of Barueri, in the metropolitan area of the city of São Paulo, is known to concentrate several accounting offices which have most clients in São Paulo.
Most municipalities in Brazil have a strong dependence on the Fund of Participation of Municipalities, which is formed by part of proceeds of Income Tax and Industrial Tax.
Municipalities also receive part of Automotive Tax (State tax), Rural Real Estate (federal tax) and ICMS (only the fraction derived from exporting products).
Many municipalities prefer to live only on shared revenues, rather than create and collect the taxes they are entitled to.
All major cities have a municipal Secretary to handle finances.
These secretaries are the place to go in case you need to pay IPTU, or if you want to start a business in the service sector.
See, for example, Secretaria de Finanças de São Paulo and Secretaria de Finanças do Rio de Janeiro.
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