Acquisition of Real Estate: ITCMD or ITBI?

The ITBI (Tax on Real Estate Transfer) and the ITCMD (Inheritance and Donation Transfer Tax) are two important taxes in Brazil concerning the acquisition and transfer of real estate. Although both taxes are levied on property transfers, they apply to different situations and have distinct characteristics.

Types of Transfers:

• ITBI: This tax is applied to real estate transfers that involve payment, such as property sales or exchanges. ITBI is a municipal tax, and its rate varies depending on the municipality where the property is located.
• ITCMD: This tax applies to the transfer of property or rights due to inheritance (cause of death) or donation (inter vivos). ITCMD is a state tax, with rates and rules that vary according to each state’s legislation.

Timing of Tax Liability:

• ITBI: This tax is due at the moment of property transfer for a transaction involving payment between living parties, typically when the property is registered at a notary office.
• ITCMD: This tax applies at the moment of property transfer by death or donation. In the case of inheritance, the tax is due upon the division of assets; for donations, it is due at the time of transfer.

Tax Base and Rates:

• ITBI: The tax base is the appraised value of the property or the transaction value, whichever is higher. Rates are set by each municipality, typically ranging between 2% and 3%.
• ITCMD: The tax base is the appraised value of the property at the time of transfer. Rates vary by state, generally ranging from 4% to 8%.

Exemptions and Non-Taxable Events:

• ITBI: This tax does not apply to property transfers for corporate capital contributions or to real estate transfers for mergers, incorporations, spin-offs, and company dissolutions, as long as the company is not primarily involved in real estate.
• ITCMD: Some states offer exemptions for low-value transfers or for specific heir categories, such as spouses or children.

Understanding these differences is essential for anyone involved in real estate transactions—whether buyers, sellers, or heirs—to ensure compliance with tax obligations and to optimize tax planning related to these assets.