Publications - 23/08/21

Brazilian Real Estate transfer TAX (ITBI) immunity over in-kind capital contribution after the judgment oh the Brazilian Supreme Court

Real Estate Transfer Tax (ITBI) is not levied on the transfer of assets or rights incorporated into the equity of a legal entity in the realization of capital, unless the legal entity has as its main activity the purchase, sale or rent or lease of real estate properties (art. 156, § 2º, of the Brazilian Federal Constitution and articles 36 and 37, of the Brazilian National Tax Code).

This literal interpretation considers that the immunity applies regardless of the property’s value. However, it was limited by the Brazilian Supreme Court in the judgment of the general repercussion in the Extraordinary Appeal (RE) 796.376, which settled the thesis “Immunity in relation to ITBI, provided for in item I of § 2 of article 156 of the Brazilian  Federal Constitution, does not reach the value of the real estate that exceeds the limit of the share capital to be paid in”.

This is because the partners or shareholders can transfer property with a value higher than the amount subscribed in the share capital, allocating this excess portion to a capital reserve account. Thus, the Brazilian Supreme Court ruled that ITBI is levied on the difference between the value of the property and the value of the share capital to be paid in, which, in a way, created an “exception” to the ITBI immunity rule.

Since then, taxpayers must be aware that the ITBI immunity in the payment of share capital is limited by the value of the share to be paid.