Tax Reform and Real Estate Leasing: When Rental Income May Be Subject to IBS/CBS

Tax Reform and Rentals: How IBS and CBS May Apply to Real Estate Leasing (LC 214/2025)

Complementary Law No. 214/2025, which regulates key aspects of Brazil’s consumption tax reform, establishes the circumstances under which IBS and CBS apply to transactions involving real estate, including leasing, paid assignment, and rental arrangements.

For property owners leasing real estate in Brazil — including non-residents and foreigners in Brazil — the issue is strategic because it involves: (i) when the landlord becomes a taxpayer, (ii) how “habituality/economic activity” is defined, (iii) the tax base and applicable reductions, and (iv) transitional rules.

1) IBS and CBS on real estate: a specific tax regime

LC 214/2025 establishes that real estate transactions, for taxpayers under the regular regime, are subject to a specific regime.

LC 214/2025 expressly states that IBS/CBS apply, among other operations, to leasing, paid assignment, and rental arrangements.

2) When an individual becomes a taxpayer (habitual leasing)

The law defines situations in which an individual engaged in real estate transactions will be considered a regular-regime taxpayer (and, therefore, subject to the regime set out in the law).

For leasing, paid assignment, and rental arrangements, an individual will be considered a taxpayer when, in the previous calendar year, both of the following are met:

• total revenue from these transactions exceeds BRL 240,000; and

• the transactions involve more than three distinct real estate properties.

In practice, LC 214/2025 creates an objective trigger for habituality/economic activity based on (i) revenue and (ii) number of properties.

3) Reduced rates for real estate transactions — and a 70% reduction for leasing

The law provides rate reductions in the real estate chapter.

General rule: rates applicable to real estate transactions are reduced by 50%.

For leasing, paid assignment, and rental arrangements, there is a specific rule: rates are reduced by 70%.

This point is essential to estimate the economic impact and compare it with the current scenario (ISS/ICMS/PIS/COFINS, as applicable).

4) Tax triggering event in leasing

LC 214/2025 establishes that, for leasing, paid assignment, or rental arrangements, the triggering event occurs at the time of payment.

This affects cash flow organization and controls — especially for those receiving payments from multiple tenants and/or using a property manager.

5) “Social reducer” for residential leasing (potential mitigation)

The law provides a social reducer applicable to leasing/paid assignment/rental of residential property, allowing the deduction of a fixed amount per property (subject to indexation).

This tends to be relevant for small and medium landlords who nevertheless exceed the habituality thresholds.

6) Transitional rule: existing contracts and the 3.65% option

A specific rule applies to fixed-term contracts:

Article 487 allows an option to collect IBS and CBS based on gross revenue received, subject to conditions and deadlines for registration/proof of the contract.It also provides that transactions under this regime will be subject to an amount equivalent to 3.65% of the gross revenue received.

This is one of the most important points for property owners with existing/structured contracts before full implementation, as it may operate as a transitional accommodation rule, provided formal requirements are met.

7) Impact on non-residents and foreigners in BrazilNon-resident with property leased in Brazil:

In addition to income taxation (IR), it becomes necessary to assess whether the leasing may be treated as an economic activity for IBS/CBS purposes, depending on volume and number of properties (objective criteria).

Foreigner in Brazil (or non-resident investor) with a real estate portfolio:The main concern is compliance and structuring, as classification may require document organization, revenue segregation, and analysis of the best management model.

Conclusion

LC 214/2025 does not “tax every rental automatically”, but it establishes objective criteria to treat certain leases as an economic activity for IBS/CBS (e.g., BRL 240,000/year + more than 3 properties) and creates specific rules: 70% reduction for leasing and a 3.65% option in transitional situations under Article 487.

If you own rental properties in Brazil (resident or non-resident) and wish to assess the impact of the tax reform on your real estate portfolio, our firm specializes in the matter. If you wish to hire professional legal services related to this topic, contact us at contato@trpuppioadvocacia.com.br or via WhatsApp.

FAQ

Will rent be subject to IBS and CBS?

There may be incidence in situations provided for in LC 214/2025, especially when the individual qualifies as a taxpayer under objective criteria.

What are the criteria for an individual to become a taxpayer in leasing?

Prior-year annual revenue above BRL 240,000 and leasing involving more than 3 distinct properties.

What is the transitional rule for existing contracts?

Article 487 provides an option with conditions and payment equivalent to 3.65% of gross revenue received.