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IPTU (Urban Building and Land Tax; Imposto sobre a propriedade predial e territorial urbana)

"Casa de taipa"

Real estate tax based on the value of the construction

The tax on urban property and land, IPTU (property tax) is a tax of Brazil established by the Federal Constitution which applies to the urban property.

This tax is being charged by the local municipality. IPTU is paid every year, by the owner of the house, building or land plot. In case of rentals, it is usual practice to include in the contract a clause passing to the tenant the obligation to pay IPTU. However, for the municipality, the legal debtor is the owner (the municipality will sue the owner, in case the tax is not paid).

In the case of rural areas, the tax on the ownership of the property is the ITR . The tax payers are individuals or legal entities which maintains ownership of the property. The function of the property tax is typically to collect tax, although it also has a social function. Its main purpose is to obtain funding for municipalities, although it can also be used as an instrument of control of urban land prices.

Currently it is defined by Article 156 of the 1988 Constitution , which characterizes it as a council tax, ie only the municipalities have the power to apply it. The only exception occurs in the Federal District. In Brazil, property taxes usually have a prominent role among the collected taxes in the municipalities. It is  appearing often as a primary source of funds in municipalities, in which taxes such as the ISS  have lower base of contributors.

The basis for calculating the property tax is the value (Valor venal) of the terrain plus the money invested in the construction of the real estate. This value must be understood as a forced liquidation value. It is different (and most times lower) from its market value. Therefore, the market value of a property can reach less than 50% of its market value. The rate used is established by the municipal legislature, varying according to the municipality.