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Tax Treaty Considerations for Expats in Brazil

Submitted: April 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Brazil, and intend bring money earned from them into Brazil during your stay. They also apply if you build up some investments in Brazil during your stay, and intend to leave them there after you have left Brazil. Brazil has a network of tax treaties in force with over 30 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in Brazil; only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

Brazil does not charge withholding tax on dividends.

The withholding tax rate in Brazil on interest sent to a country without a tax treaty is 15%, which is low by international standards. A few of Brazil’s tax treaties have lower rates, but this is generally associated with loans from non-Brazilian banks used to finance industrial or scientific complexes.

The withholding tax rate in Brazil on royalties sent to a country without a tax treaty is 15%, which is low by international standards. Where lower rates have been negotiated, they are generally reduced to 10%.

Brazil maintains a list of countries (mainly tax havens) to which a withholding tax rate of 25% is applied on any payments sent them.

Brazil’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Brazilian residents. For the complete rules and rates it is necessary to read the treaty itself. A link to each Brazil treaty in force can be found here. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in Brazil you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Brazilian country to one with a more favourable tax treaty, or even to Brazil itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Brazil, you may benefit by becoming tax-resident in Brazil as early as possible. At the end of your stay in Brazil you can also rearrange your affairs to ensure that any on-going income from Brazilian employment or investments is also taxed at the lowest rate possible in the future.

 

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