How to declare income in Brazil while living abroad?

How to declare income in Brazil when living abroad? For those who live abroad and for some reason maintain tax residence in Brazil, there is an obligation to submit foreign source income to Brazilian taxation. To do this, it is important to know what this income is.

How to declare income in Brazil while living abroad - Which income to declare?

In Brazil there are two ways of taxing income earned abroad: (i). as a capital gain in foreign currency, usually at a rate of 15%, but which can be progressive up to 22.5%; or (ii). as compulsory monthly income ("carnê leão"), subject to progressive rates, from 0% to 27.5%.

The rules on capital gains in foreign currency apply to the disposal of goods or rights acquired abroad and also to the liquidation or redemption of financial investments held abroad. Interest on these financial investments is also subject to this regime. Taxation is final, which means that the tax calculated on the transaction is not added to other income for adjustments (calculation of tax to be refunded or supplemented).

Complying with the legislation on capital gains in foreign currency means keeping records of the dates of the transactions carried out, in order to convert the exchange rate from foreign currency to US dollars and then to Brazilian reais. It is also important to know the currency of origin of the funds used to acquire assets or invest abroad, in order to know which exchange conversion rule to apply. This control can be relatively complex, depending on the number of operations.

Capital gains in foreign currency 

Capital gains in foreign currency must be reported on a transaction-by-transaction basis in the "GCAP" auxiliary program and in the annual tax return, and cannot be offset against losses. This is very disadvantageous for two reasons: declaring these gains is a lot of work, especially for those who hold financial investments or trade shares on the stock exchange. Investments in the variable income market in Brazil, on the other hand, are only taxed on net gains, reported month by month and with the possibility of offsetting losses.

The "carnê leão" applies to all other foreign source income, such as salaries, dividends, rents, etc. As the "carnê leão" adds up all income for the month, whether from a Brazilian or foreign source, care must be taken when calculating it. You can only be sure of the amount of tax due once you have identified all the income for the month to be added together, which may not be an easy task.

What about Carnê Leão?

Carnê leão has its own rule for converting foreign currency values into reais. This income is reported on the carnê leão form in a specific column on foreign income. The tax paid abroad on this income can also be converted into reais and used to offset the amount of Brazilian tax.

For more information on this subject, I suggest reading the text "Taxation of earnings and income from abroad: how to calculate and declare" e "Declaration of Final Departure in 2020: what you should know".

On this blog you will always find relevant information and up-to-date information on the subject, as well as guiding you 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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This text about Declaring income in Brazil while living abroad was prepared by Vinícius Tersi Advocacia, a law firm specializing in International Tax Consulting.