In Brazil, it’s possible to capitalize a company not only with cash but also with assets such as real property. For example, if you own land, you can transfer it to your company as an “in kind” capital contribution. Just be mindful of the tax consequences.

Two different taxes may be levied on in kind contributions of real property: capital gains and ITBI. These are the same two taxes that apply to the sale and purchase of real estate.

Let’s start with capital gains tax. If an individual transfers real estate in the form of a capital contribution to his company, the federal tax authority (Receita Federal) will charge capital gains on the value attributed to the property that exceeds the original purchase price.

The second tax is ITBI, a municipal tax on the transfer of real property. However, this tax won’t be charged if the company’s activities are unrelated to real estate and the transfer value doesn’t exceed the company’s capital. Furthermore, according to the Supreme Court, ITBI can only be levied on amounts that exceed the company’s capital.

So what does this all mean for you? Plan accordingly. Know the value of your property; understand your company’s capital structure; and consider hiring a professional to help with tax planning. You can minimize the impact on you and your business by considering the tax consequences up front.

Want to know more about taxes on real estate transactions in Brazil? Click HERE to read our article.