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Investment Taxation for Expats in Brazil

Submitted: April 2014

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in Brazil and abroad
  • dividends, and
  • capital gains.

Interest

Residents and non-resident individuals, interest income from Brazilian sources is subject to tax at rates of 15% to 22.5%. The rate depends on the investment term of the instrument held. The tax is deducted at source. Interest earned from savings accounts is exempt from tax.

For residents, investment income received from non-Brazilian sources is taxed as ordinary income; it must be reported and settled on a special monthly tax return via the carnê-leão system (see below). Withholding taxes may be applied by the country of origin, though these may be reduced by a relevant tax treaty.

Rental income

For residents, rental income worldwide is taxed as ordinary income, and may have to be reported and settled on a special monthly tax return via the carnê-leão system (see below). Profit is calculated after the deduction of certain costs, including management charges, agency fees, repairs and other costs. Mortgage interest is not deductible. If you are a resident receiving rental income from a country outside Brazil, you should be able to offset tax paid abroad against your Brazilian tax liability, provided a tax treaty exists, or there is a law in that country which guarantees similar treatment in that country.

For non-residents, only rental income that is from a Brazilian source is taxable, and a fixed rate of 15% is applied.

Dividends

For residents and non-residents, dividend income from Brazilian sources is not taxable.

Capital gains

For residents and non-residents, capital gains are generally taxed at a flat rate of 15%. However there is an allowance of one tax-free capital gain per month, provided the final consideration is less than R$35,000. Sales of listed Brazilian shares with a consideration of less than R$20,000 are exempt from tax; however sales with a consideration of more than R$20,000 are taxable on the entire amount. If an individual sells their only residence for no more than R$400,000, and it has been owned for five years of more, this transaction is exempt from capital gains tax. There is also an exemption if the money raised from the sale of property is used to buy other property within 180 days of the sale.

Carnê-leão

Expats should be aware that any form of taxable income, which has not been subject to withholding tax, must be reported to the tax authority on a monthly basis. Any tax due must be paid at the same time. This is done via the carnê-leão (aka DARF) system. The best way to think of the carnê-leão system is as a self-administered PAYE system. Penalties apply for late reporting and payment, so you might be wise to set aside an evening a month to complete your report.

 

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