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BR I often get questions from clients who live abroad and want to keep their jobs. financial investments in Brazil after the tax exit. I have already published texts on the final exit declaration, investing in Brazil while living abroad, o non-resident financial investment e data cross-checks by the Receita FederalI hope you find them useful in clearing up these doubts.
The fact is, however, that people experience problems because there is a deep regulatory failure, and it is shameful to see how the lack of coordination between the Federal Revenue Service and the Central Bank harms the country.
The aim of this text is therefore to summarize the problems that people living abroad encounter when they try to formalize their non-resident status and, at the same time, maintain their financial investments. Where appropriate, reference will be made to previously published texts which contain more detail.
First dilemma: communication to banks and brokers
According to the regulations of the Brazilian Federal Revenue Service (RFB), a person who submits a Communication of Final Departure (CSD) or a Declaration of Final Departure from the Country (DSDP) is entitled to duty to notify paying sources of income in Brazil their non-resident status1See art. 3, §2, of the SRF Normative Instruction no. 208/2002.. The reason for the requirement is that the RFB itself cannot do this, as it infringes the duty to protect tax secrecy2See art. 198 of the CTN..
The banks and brokers in Brazil are paying sourcesThis is because they pay or intermediate interest, dividends and other financial income. The notification can be made by letter, and the IRS itself prepares a template automatically. Once submitted, the the source of payment is obliged to withhold income tax at source (IRRF) with the rules applicable to non-residents.
When notifying the bank or brokerage house to fulfill their duty, the non-resident is informed that cannot keep their own bank account and financial investments in Brazil with the institution. Some clients have already reported that managers prefer not to be formally communicated with, as the only way to maintain the relationship with the client.
Note that none of this refers to RFB regulations. The point is that banks and brokers must comply with the regulations of the Central Bank and the National Monetary Council (CMN), which have a completely different focus.
Second dilemma: keeping a bank account after tax exits
Central Bank regulations prohibit banks from maintaining normal demand deposit accounts for non-residents3See Circular no. 3.691/2013, arts. 168-186.. They can only operate foreign domiciled accounts (CDEs)The Central Bank has created special bank accounts so that it can maintain control over the amounts held by non-residents in the country. This has a direct impact on the maintenance of financial investments in Brazil linked to these accounts.
The CDEs are subject to strict and disproportionate control. In regulatory terms, the money transferred from the Brazilian source to a CDE is treated as money transferred abroad, even for transfers in reais.
Banks are therefore obliged to document "currency outflows" into the CDE as if they were foreign exchange transactions. But the Central Bank's regulations are aimed at the bank, not the account holder. For the non-resident who decides to report his tax outflow, what matters is that the bank will not keep your normal bank account. Nor is the bank obliged to open the CDE, and the rigor required by the Central Bank gives little economic incentive for the CDE to be offered as a financial product.
Unfortunately, the difficulties don't end with the difficulty in opening the CDE. The CDE is a bank account to which financial investments in Brazil, which are also affected, are linked.
Third dilemma: preserving financial investments after the tax exit
From a tax point of view, the treatment of financial investments in Brazil is favorable. The RFB allows non-residents to choose two different tax regimes for your financial investments4See arts. 85-87 and 88-99 of the RFB Normative Instruction no. 1.585/2015., o general regime and special regimealso known as "Investor 4373".
The reasoning behind the two regimes is quite sound. The general regime should be the general rule, and the special regime should be the exception:
- in general regimefinancial investments in Brazil are subject to income tax in the same way as a tax resident in Brazil.
- The RFB requires the appointment of a legal representative who is responsible for paying income tax on net gains made on stock, commodities, futures and similar exchanges, with gold (a financial asset) and in off-exchange futures settlement transactions. For other financial investments, no legal representative is required;
- in special regimeIt was created as a tax incentive to attract institutional investors (pension funds, sovereign wealth funds, etc.), the investor enjoys various tax favorsThese include exemption from gains on stock market operations and interest on government bonds.
- This regime only applies to beneficiaries resident or domiciled abroad who meet the rules and conditions established by the National Monetary Council (CMN), as well as some additional requirements from the RFB.
The dilemma in this case stems from CMN regulations. The CDE only allows financial investments in savings accounts, the bank's own CDBs and private pension funds. In order to invest in other financial assets (shares, investment funds, government bonds, etc.), the non-resident must meet the requirements of the special regime5See art. 1 of CMN Resolution No. 4.373/2014.. In other words, the special regime becomes the rule, not the exception. It becomes impossible to opt for the general regimeeven if the investor wants to.
From experience, some financial institutions can currently charge between R$ 2 thousand and R$ 5 thousand per month to comply with the CMN's requirements. This cost is perfectly acceptable for an institutional investor, for whom the special regime is intended. But it is unfeasible for small investors. This is where the regulation failed.
The result of the rule is the surprise that every non-resident feels when they tell their bank or broker that they have lost their tax resident status in Brazil. Even if they open a CDE, the cost of the special regime is unacceptable to many. And this leads to the relationship with the bank or broker being terminated and financial investments in Brazil being liquidated.
What to do?
There is no obvious answer for the situation of every person living abroad. The above points apply only to non-residents, so those who live abroad but maintain tax residency in Brazil are not affected (the situation of dual tax residence).
For non-residents, following the legislation as laid down by the RFB, the Central Bank and the CMN means communicating with banks and brokers and assuming the costs of the CDE and compliance with the special regime. The alternative is to liquidate investments in Brazil.
I have already analyzed cases in which taxpayers, usually out of ignorance, formalize the tax exit but fail to comply with the duty to notify the paying sources. For these cases, there is the risk that the RFB, when cross-checking information, assumes that the non-resident resumed tax residence in Brazil. We have already dealt with this situation and how to solve the problems of data cross-checks by the Receita Federal that often arise.
Today we are in a very different regulatory context from the one in which most of these rules originated. The Brazilian community abroad is larger and more widespread, with its own needs, to which we also have to respond. it is up to the Brazilian state to. To use the expression of one of our clients, "nobody leaves the country by turning off the light, leaving nothing behind".
Financial repression is not justified. The Brazilian capital market is more mature and has an interest in keeping small investors, whether Brazilian or foreign. It's clear that the Central Bank and the CMN should make it easier for those who have lived and worked in Brazil and want to continue investing in our market, even if they live abroad.
On this blog you will always find relevant, up-to-date information on the subject and guidance on how to avoid problems with the tax authorities and other authorities. Feel free to tell us about your experience, share the content with other friends who need guidance and contact us by e-mail at contato@tersi.adv.br or via WhatsApp. Click here to send a message now.
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References:
- 1See art. 3, §2, of the SRF Normative Instruction no. 208/2002.
- 2See art. 198 of the CTN.
- 3See Circular no. 3.691/2013, arts. 168-186.
- 4See arts. 85-87 and 88-99 of the RFB Normative Instruction no. 1.585/2015.
- 5See art. 1 of CMN Resolution No. 4.373/2014.
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