INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are generally taxed jointly but married couples married under the separate property regime can opt for separate taxation. A spouse who is taxed separately may not be considered a dependent for tax purposes.

INCOME TAX

Income from all sources are aggregated and taxed at progressive rates.

Residents can avail of the following deductions and allowances from their gross annual income:

• Substantiated and un-reimbursed medical, dental, and health-related expenses incurred by the taxpayer and his dependants
• Qualifying education expenses incurred by the taxpayer and his dependants; maximum of BRL2,592.29 (US$1,192) for 2008, maximum of BRL2,708.94 (US$1,246) for 2009, BRL2,830.84 (US$1,302) for 2010

However, all incomes of residents are subject to monthly withholding taxes as advance payment for their final tax liability. The withholding taxes are levied at progressive rates, depending on the monthly taxable income of the resident taxpayers. The taxable income is the monthly gross income less deductions and allowances.

Residents can avail of the following deductions and allowances from their gross monthly income:

• Allowance for each qualifying dependant; BRL137.99 (US$64) per month for 2008, BRL144.20 (US$66) per month for 2009, BRL150.69 (US$69) per month for 2010
• Contributions paid to the national social security system
• Contributions paid to qualified Brazilian private pension funds
• Deductible expenses for calculating income from independent services
• Alimony and child support payments
• Pension paid by the national social security system to taxpayers more than 65 years old; maximum of BRL1,372.81 (US$632) for 2008, maximum of BRL1,434.59 (US$660) for 2008, BRL1,499.15 (US$690) for 2010

Instead of itemized general allowances, taxpayers who are only earning employment income may choose to take a single allowance for notional expenses equal to 20% of income, but is limited to BRL12,194.86 (US$5,609) for 2008, BRL12,743.63 (US$5,862) for 2009, and BRL13,317.09 (US$6,126) for 2010. Taxpayers availing of this option are not entitled to any other deductions.

CAPITAL GAINS TAX

Capital gains realized by residents on sale of real property, are taxed at the rate of 15%. The taxable gain is computed by deducting the acquisition costs and transaction costs from the gross selling price or market value of the property.

However, capital gains derived from sales of real estate acquired by the seller before 1988 is reduced by a certain percentage, depending on the year in which the property was acquired. A similar reduction applies with regard to real property acquired until 1995.

PROPERTY TAX

Municipal Tax on Real Estate
(Imposto sobre a Propriedade Predial e Territorial Urbana or IPTU)

Property taxes are imposed on the assessed value of urban properties, as assessed by the municipality. The tax rates vary from one municipality to the other. Typical rates are around 0.5% to 4% levied on the assessed value of the property, an assessment usually lower than market value.

Federal Rural Property Tax (Imposto sobre a Propriedade Territorial Rural or ITR)

Rural property tax is levied on the land located outside the urban zones of the municipality. Unlike the IPTU, this is a federal tax. The tax rates vary from 0.03% to 20% depending on the number of hectares of land and the ratio which the utilized area bears to the total land area. Property owners are liable to pay this tax.