Who is subject to income tax in Brazil?
All individuals resident in Brazil are subject to taxation in a worldwide basis, being all their income subject to Brazilian income tax regardless of where the paying source is located. As a general rule, non-resident individuals are taxed exclusively by withholding income tax at source, whenever the paying source is located in Brazil.
Nevertheless, there are some specific situations when non-residents can be considered resident for income tax purposes, even though they do not reside permanently in Brazil.
The first hypothesis is when a foreign national enters Brazil holding a permanent visa or under an employment agreement with a Brazilian entity. In these situations, the foreign national shall be subject to taxation as of the date of entry in national territory. Another possibility is when a foreign national holding a temporary visa and without an employment agreement with a Brazilian entity, stays in national territory for 184 days in any given 12-month period.
In both scenarios, the Brazilian taxation subsists until the foreign national leaves the country, filing the definitive departure tax return, which is a variation of the annual tax return, or automatically, after 12 months away from the country.
Some treaties to avoid double-taxation, (e.g. Norway-Brazil) establish that foreign individuals from the signatory country only acquire fiscal residency after 184 days of presence in Brazil in a given year. Nevertheless, since 1985 all treaties establish the 12-month period rule and the Brazilian tax authorities’ decisions always mention this new rule.
Therefore, in order to adopt a more conservative position, it is recommended to consider each individual resident for fiscal purposes after 184 days in any 12-month period, instead of any given year.
- Income Tax Return and other obligations
Individuals considered resident for tax purposes are obliged to file the same tax returns and to the monthly income tax payments as resident individuals. The main obligations are:
Annual Adjustment Income Tax Return (“Declaração de Ajuste Anual”)
This return shall be filed from the first business day of March until last business day of April of each year. It comprises all the information regarding the fiscal year (1st January to 31st December): income (from local employments, from abroad, capital gains, rents, financial investments, interest, etc.), dependents, assets and rights, debts, and payments to service providers.
Monthly Income Tax (“Carnê-Leão”)
Amounts that are not subject to withholding income tax at source are taxed via the monthly tax payment system, called “Carnê-Leão”. Rent income received from individuals and income received abroad are subject to this form of tax levy, with tax rates according to the monthly income tax brackets, which corresponds to 1/12 of the annual income tax brackets.
The payment shall be done until the last business day of the month subsequent to the one the income was received by the taxpayer.
Definitive Departure Tax Return
This return is in essence the same as the Annual Return, with the exception that it is filed in two parts: the Notice of Definitive Departure, which a mere notice informing the date of departure, filed when the taxpayer leaves the country; and the actual Definitive Departure Return, which is filed during March-April of the following year, but in relation only to the period the individual stayed in Brazil.
The income tax payable accrued in this return must be paid in a single installment, at the date the Definitive Departure Return is filed.
Mr. André Hazan Fonseca.Statement of Brazilian Capital Abroad
Every individual considered fiscal resident in Brazil and with total equity over USD 100,000.00 is subject to an annual Census realized by the Brazilian Central Bank.
This Census is denominated Brazilian Capital Abroad Return (Declaração de Capitais Brasileiros no Exterior – CBE), which can cause some confusion, since it is also applicable for foreigners who have acquired fiscal residency in Brazil. Even assets acquired prior to obtaining fiscal residency in Brazil and exclusively with foreign income are subject to this statement.
The statement is comprised basically of a simplified version of the assets part of the Annual Adjustment Tax Return. The non-compliance with this Census is subject to a heavy penalty, with a maximum value of R$ 250,000.00 per year.
- Offsetting taxes paid abroad
The income tax levied in the country of residence of the foreign national may be offset with the income tax paid in Brazil. This tax offsetting is valid for all the countries with which Brazil has signed a treaty to avoid double taxation.
The offset value cannot exceed the difference between the Brazilian income tax calculated including the income received abroad and the calculation excluding said income. In order to offset taxes paid in another country, the taxpayer must have a sworn translation to Portuguese of the proof of payment related to the same period (monthly or annual payment).
Brazil has established treaties to avoid double taxation with the following countries:
|Argentina||Czech Republic||India||Mexico||Slovak Republic|
The Brazilian tax legislation allows reciprocity of tax treatment for countries whose legislation allows the offsetting of taxes paid in Brazil. It is necessary to have a sworn translation to Portuguese of the country’s tax legislation allowing this offset as proof of the tax treatment.
The agreement between Brazil and Norway was ratified by Decree no. 86.710, which, among its provisions to avoid double taxation and prevent fiscal evasion, predicts the incidence of taxation in all income received by the taxpayer, including the benefits (art. 15), and the information exchange (art. 27).
By André Hazan Fonseca, partner at Hazan Fonseca Advogados;
The firm Hazan Fonseca Advogados specializes in the consulting for foreign companies operating in the Brazilian market, with special regard to tax and business law matters.