Changes to a centuries-old tax applicable to certain real estate in Brazil

Friday 13 August 2021

Luciano Oliveira
Navas Oliveira Advogados, São Paulo

Brazil is about to start expediting the phasing out of a centuries-old tax collected on marine marginal land, also known as ‘marine land’ (‘terrenos de marinha’ in Portuguese).

These lands are considered a hybrid type of property co-owned by a private party and the federal government; a system which originated during the country’s colonisation. The current law, which was enacted in 1941, is applicable solely to areas of land facing a sea, a river or a lake.

The special tax treatment given to these lands meant an increased tax burden and a reduction of these lands’ value due to the co-ownership status.

Three main taxes associated with marine lands in Brazil

Foro: Annual tax to be paid by owner. The private party owns most of the property. This fee is calculated as 0.6 per cent of the property value.

Ocupação: The tax rate varies. The federal government owns most of the property.

Laudêmio: Tax to be paid when selling the land.

The change

The current administration is implementing a plan to allow current owners of marine land to get their lands out of the above-described marine land regime. According to this plan, the private parties would be eligible to buy the federal government’s co-ownership of the land, which is currently assessed as 17 per cent of the total ownership. Additionally, such private party would get a 25 per cent discount if the payment is made in a single instalment.

The supporting federal Law No 14.011 was signed by President Bolsonaro in 2020.[1] However, the federal agencies have been working on drafting the regulations to materialise the law since then. It is expected that Rio de Janeiro will offer these changes as soon as October 2021. After a successful implementation in Rio de Janeiro, other states would follow.

Although it is already possible for a private party to buy federal lands, the process to do so is usually complex, time-consuming and costly. Under the new law, this would become much easier, more affordable and accessible to most, if not all, owners of marine land. It is a substantial step towards phasing out the special regime applicable to marine lands in Brazil.

To illustrate how this would affect a private owner of marine land, let us assume that a plot of land in the north-east coast of Brazil is worth $1m. To buy the government’s share in the ownership, the private party would pay $170,000 to the Brazilian treasury. And, if paid in a single instalment, the private party would pay only $127,500 (75 per cent of $170,000).

By buying the federal government’s ownership share, the land would no longer be taxed under the marine land tax regime, and the owner would have the following advantages:

  • no more payments of foro or ocupação on top of the other traditional taxes like the property taxes charged by the city where the land is located;
  • no more payments of the laudêmio tax when selling the property;
  • no more presumption that the federal government can take your land whenever they need (the land would still be subject to eminent domain);
  • substantial increase in the land value because the land is no longer subject to these additional taxes; and
  • the owner is no longer a ‘lessor-owner’ sharing ownership with the federal government.

The Brazilian government expects these changes to result in a boost to the government reserves that were substantially affected by the Covid-19 crisis.[2]

Why it matters to cross-border attorneys

Although there are restrictions on the size of marine lands that foreign citizens can buy in Brazil, hundreds if not thousands of foreign citizens own such lands. Many of these foreign citizens are not aware of these changes to the marine land regime in Brazil. Such changes may represent an opportunity for savings in future taxes to private owners and a possible increase in the value of these types of properties.

[1] Complete text for the law in Portuguese available at www.in.gov.br/web/dou/-/lei-n-14.011-de-10-de-junho-de-2020-261279450.

[2] A press release from the government addressing the ‘Main changes in the management of real estate property from the Federal Government’ which includes the possibility of private owners getting rid of the marine lands taxation scheme is available in Portuguese at: www.gov.br/economia/pt-br/assuntos/noticias/2020/junho/confira-as-principais-mudancas-na-gestao-de-imoveis-da-uniao.