After speaking about expat taxes in Thailand, South Korea and Japan, Germany, Singapore, France and the Philippines, this article will speak about Brazil.
Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains taxes..
Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.
With the ongoing covid situation, some of the information in this article is subject to change, including expat taxes and work permits.
If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form.
Often investing as an expat can be done much more tax-efficiently than people think, and much more than sending money home for most nationalities.
Taxes and the entire tax system are designed to replenish the state treasury, since ancient times people have paid taxes, which were called differently and could have not only monetary expression, but also material.
The general content of the entire tax system is reduced to the establishment of order in the legal and financial order, in general, its understanding, that is, throughout the country.
The essence and content of the tax system characterizes the entire nature of the implementation of this system in practice. The content of the tax system is quite understandable for both citizens of the country and for legal entities, which are the main taxpayers of the country.
The main activity of the tax authorities of any country is control over the use of tax incentives, as well as the implementation of trade operations.
The tax authorities have the right to adjust the tax liabilities of taxpayers in the event that the transactions performed are aimed at tax evasion. The tax rate is a percentage calculated based on the tax base.
The tax rate, expressed as a percentage, is determined in monetary terms and is subject to mandatory payment to the tax authorities by the taxpayer.
The tax rate for the same tax may be different, as it is due to different factors: the type of business, the income received from the business, the category of the taxpayer, or certain conditions of doing business. First of all, the rate determines the amount of tax revenues to the country’s budgets.
The increase in the tax burden directly depends on the increase in the tax rate. There are many different types of taxes in the tax system of any country: federal, regional, local or special tax regimes. But one way or another, the tax rates for all these taxes are different, and it should be noted that there can be several rates for one tax.
The tax base is the object of taxation, expressed in monetary, natural, quantitative or other form. It is from the tax base that the tax rate is charged, therefore the tool for forming and determining the tax base is practically one of the most important.
Brazilian tax system
Brazilians, both Brazilian and foreign nationals, are subject to taxation on their international income.
People reporting foreign income earned can qualify for a foreign tax credit for taxes that have already been paid if there is a tax treaty or mutual cooperation agreement between Brazil and the foreign country.
The income must be free of any obligations and must be confirmed by the original documents proving payment in accordance with the foreign tax jurisdiction.
Taxable income includes the entire monetary amount and fringe benefits.
For foreigners working in Brazil, this includes, among other things, the cost of family travel to their place of permanent residence (foreign country), housing allowances, education, and cars, medical and other living expenses. In addition, any tax compensation paid is included in taxable income.
Non-monetary fringe benefits, such as the use of a company car or membership of a local club, are also included in taxable income.
No distinction is made between personal expenses that are reimbursed to an employee by the company and personal expenses paid directly to a third party by the company.
Permanent benefits are tax deductible, except in certain cases. The tax rates of Brazilian companies making payments to individuals must contain personal income tax on a monthly basis according to the progressive tax rate table.
So let’s learn more about taxation in Brazil, its different types and payment size. And for the beginning you can get acquainted with the Brazilian tax system.
Brazil is a country in South America, its tax system is rightfully considered one of the most complex and also expensive, since the tax rates in other countries are quite high, and there are a lot of taxes and fees. Collectively, Brazil’s tax revenue accounts for about 40% of the country’s GDP.
In Brazil, there are:
- Federal Taxes;
- Municipal taxes;
- Brazilian state taxes, etc.
The main tax in Brazil for taxpayers, both individuals and legal entities, is income tax, the rate of which is 15%. Here it should be noted that even non-residents of Brazil, who receive dividends from their investments in the country, are also taxed at a rate of 15%.
Instead of social security contributions, in Brazil there are contributions to the country’s pension system, which are 8% of the taxpayer’s profit.
Brazilian state tax is 5% of the current Federal tax rate. But here it should be noted that the profits that companies can receive outside of activities carried out in Brazil are not subject to state tax.
The main types of taxes in Brazil
In Brazil, there are more than 18 different taxes and fees, the main ones are considered (all the listed taxes are federal):
- Taxes for the provision of social insurance of Brazilian citizens;
- Taxes that are necessary for the maintenance and work of federal employees, as well as for the implementation of social programs and activities;
- Taxes that are required for social security;
- Taxes levied on legal entities in Brazil, where the tax base is their net profit;
- Taxes paid on financial transactions carried out by residents of the country.
It is important to note that not only taxpayers’ income is subject to taxes and fees, but also non-monetary benefits, for example, official transport, service housing or goods of commercial value. Brazilian citizens must also pay taxes on non-monetary income and property.
Thus, the Brazilian tax system has its own characteristics, advantages and disadvantages. It is important to note that it is considered one of the most “expensive”, that is, tax rates for the most part exceed the global level.
Annual income tax declaration
The annual income tax return must be filed by the last business day in April, reporting the income earned in the previous calendar year (January 1st to December 31st).
All taxable Brazilians are required to show their international personal assets and liabilities as of December 31st of each year.
The rule is mandatory, despite the fact that part of the residents, registering this obligation, will not pay such taxes, both on the total assets and on the partial assets of a financial resident.
- Individual Income Tax in Brazil
Brazil has a progressive personal taxation system in which individuals are taxed at a maximum of 27.5% of their income.
As already noted, the financial year in Brazil starts on January 1st and ends on December 31st.
The rate increases from 0% to 27.5% and is divided into three groups. These tax brackets apply to monthly income amounts on an annual basis.
In Brazil, taxpayers have access to several types of discounts, depending on the declaration regime and whether it is simplified or full:
- Up to BRL 2,198 (USD 1,266) per year for education expenses.
- Brazilian private pension plan contributions, up to 12% of gross income
- Social security rates
- Donations, certain school fees, medical expenses, etc. (Maximum 20% of global annual income).
Self-employed people can deduct expenses when calculating their income for tax purposes.
- Corporate tax in Brazil
On August 1, 2007, the tax authorities issued standard guidelines for regulating the super simples, announced by the Brazilian government in Supplementary Law No. 123/2006.
This measure allows companies under this regime – companies with annual gross revenues of up to R $ 2,400,000 (USD 1,372,684) – to pay a single tax in lieu of the following federal, state and municipal taxes:
- IRPJ (federal corporate income tax)
- CSLL (Federal Social Security Contribution for Net Income)
- PIS and COFINS (federal contributions levied on income)
- IPI (federal excise tax)
- Federal taxes / payroll deductions
- ICMS (government taxes on goods and services)
- ISS (utility tax).
The applicable tax rate will vary from 4% to 17.42% depending on the type of activity – industry, trade, services, etc.
This new tax regime, which took effect on 1 July 2007, differs from the standard methods for calculating corporate income tax.
Larger companies can usually calculate income taxes using the actual profit method (lucro real) or the estimated profit method (lucro presumido).
Under the effective profit method (lucro real), taxable income is calculated according to corporate records and adjusted for tax purposes in accordance with the applicable regulations (standard calculation of taxable income).
Corporate taxpayers can estimate their monthly tax payments (IRPJ and CSLL) using the calculation rules applicable to the base of the estimated taxable income.
The final balance sheet and income statement should be drawn up at the end of the year and the annual tax liability (including additional income tax) calculated.
Any difference between the calculated final tax liability and the amount calculated and paid in advance or withheld at source will either be paid in March of the next calendar year (including interest) or claimed as a tax credit.
- Other Taxes in Brazil
Social security tax
Does Brazil have social security / social security taxes? If so, what are the rates for employers and employees?
Any employee earning a salary in Brazil is subject to social security contributions.
According to current legislation, the monthly Brazilian Social Security Contribution (INSS) is paid out of the total remuneration at rates ranging from 7.5 to 14 percent with a maximum contribution of BRL 713.09 for an employee (valid for 2020); while the rate is 20 percent of 28.8 percent (no limit) for the Company in excess of the gross compensation paid to the employee.
This includes the employer’s 8 percent contribution, on top of the employee’s gross compensation, to the Brazilian Government Fund for Workers (“FGTS”).
Rental income tax
The tax is levied on income of Brazilian residents worldwide at a rate of 15%, although some foreign tax breaks and credits may be permitted under specific tax treaties. Mortgage interest is not deducted when calculating taxable rental income.
Capital gains tax
Capital gains are generally taxed at 15% (with exceptions), and profits from the sale of securities on a public stock exchange are taxed at 20% for all Brazil residents.
Non-residents are required to pay 15% of the capital gains attributable to property in Brazil when profits are made. There are some exemptions from capital gains tax.
Note that Brazil has double taxation treaties with a number of other countries, which means that tax paid in one country can be credited against any tax payable in another. However, there is currently no such agreement between Brazil and the United States. These various tax treaties can affect the tax rates described above.
Inheritance and gift taxes
According to Decree No. 46655, issued on April 1, 2002, the State of São Paulo introduced a 4 percent inheritance and gift tax. This rate may differ in other Brazilian states. Under certain circumstances, part of an inheritance or gift may be exempt from tax.
Individuals who own the real state in Brazil are subject to state taxes (IPTU). This is a council tax calculated based on the value of each property as determined by the authorities. Usually tax is calculated based on the location and size of the property, which can be land, house, apartment, office, etc.
Value added sales and service tax / excise tax
It is important to note that there is no VAT per se in Brazil. Brazil’s tax regime for sales and production is not similar to that of Europe.
There are two types of value added taxes in Brazil: Sales and Services Tax (ICMS) and Excise Tax (IPI).
Municipal / local tax
Some municipalities may levy a service tax on certain businesses or a property transfer tax (2% on property transfers). The annual city property tax for property owners also applies at about 0.6%, but in some places it can be as high as 1.4% of the property’s assessed value, but this will vary depending on the municipality concerned.
It’s important to know:
Non-resident foreign emigrants, especially those who are in Brazil on a contract basis for less than six months, are subject to a tax rate of 25%.
- The idea of residence
Both individuals and legal entities are recognized as residents of Brazil, and each of them has its own requirements.
Any company of foreign origin can become a resident of Brazil if it is incorporated in its territory and also operates in Brazil.
Any individual can become a resident of Brazil if they have a permanent visa issued. Also, an individual can become a resident with a temporary visa, although it is necessary to have an employment contract, although the law allows without a contract, but then a person must live in Brazil for more than 183 days within 12 months.
People coming to Brazil on a permanent visa are taxed as locals from the date of arrival.
Permanent work visas are only granted to applicants who perform management functions, such as business administrators, CEOs or directors of Brazilian professional or business companies, duly appointed and registered on the corporate registration certificate.
The Brazilian company basically has two options to formalize the employment of a person with a permanent visa:
- be employed on a contract basis when the company pays a monthly salary and assumes other labor and tax obligations based on the payroll of a Brazilian company; or
- employment without contract employment, where the company pays for the work performed pro labore – remuneration in Brazil.
People who come to Brazil on a temporary visa to work as an employee of a Brazilian legal entity are taxed as locals from the date of arrival, as well as tax on their international income.
If a person takes any other job on a temporary visa and does not enter into an employment contract with a Brazilian entity, they will work under a technical agreement to provide technical assistance in Brazil, but remain listed as an employee of the parent company.
In this case, the tax status for the first 183 days of physical presence in the 12-month period from the date of arrival will be that of the temporary resident.
The holder of a work visa is allowed to stay in the country for 90 days (renewable visa) and work within the framework of the rules applicable to the holder of this type of visa.
For this purpose, a short-term work visa is suitable for people who wish to come to Brazil for short-term professional purposes, mainly for business negotiations, which do not provide for payment of salaries or financial compensation from a Brazilian legal entity.
After leaving Brazil, the financial resident must report his income and any taxes paid prior to the departure date.
The taxpayer must apply for an income tax refund and obtain a tax certificate of eligibility (granting) non-resident tax status, which will allow him to apply for permission from the Central Bank to repatriate all disbursed assets in local currency if these assets have been duly reported on their annual tax returns.
- CPF: what is it, what is it for?
People who plan to pay taxes regularly in Brazil often come across the concept of CPF. Such an abbreviation is the local analogue of the TIN – a similar number is required for tax registration of a person. In addition, this is the main document that is required to be presented for most transactions.
Most often, CPF is needed for the following:
- Opening bank accounts.
- Acquisition, registration of property.
- Admission to educational institutions, employment.
Such a document can be obtained not only by a local citizen, but also by a tourist who is in the country on an issued visa. To do this, you will need to:
- Visit the embassy or the nearest post office.
- Submit a passport, proof of residence in the country (for example, a hotel bill).
- Fill out the form, indicating the names of the parents (they will be included in the document).
- Pay the fee (approximately US $ 1.5).
- Visit the local branch of the tax service with a check-receipt confirming the payment of the duty, a passport, and a completed application form.
- Get a plastic CPF card with an individual number.
After completing such manipulations, the tourist will be able to receive this document, which will need to be presented along with the passport when making various purchases and other financial transactions.
Since representatives of banks and other institutions can check all the necessary data through databases, most operations will only require dictating the code indicated on the card.
Such a document is only a confirmation of the registration of a tourist / citizen with the local tax office and does not give the right to employment, as well as permanent residence.
Brazil is not one of the more tax-efficient places to live as an expat, but it isn’t high-tax in all circumstances.
Brazilian residents are also taxed on their overseas income, whereas many in the region don’t tax this source of earnings.
With a bit of planning though, this doesn’t need to be a tax-inefficient place to live, especially compared to most developed Western countries.
What are the best investment options for British expats in Brazil, and indeed globally? The article below will speak more about this very issue.
The answer might surprise you.