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Understand the taxation of income abroad proposed by the Federal Government for the taxation of financial investments abroad by those who are tax residents in Brazil, including offshore companies.
[See the full article at MP 1.171/2023: radical change to tax investments abroad]
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Tersi, for those who are not resident in Brazil, but declare income tax both in Brazil and in their current country of residence, would the greatest impact be the repeal of the exemption on capital gains? For example, if I own a home abroad, which until then was only declared for Brazilian income tax, when I sell it for a profit, am I obliged to pay tax in Brazil from now on?
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Roberto,
thanks for your question. This exemption applies in a very specific situation: the person made a permanent departure (or was never a tax resident in Brazil), acquired an asset abroad and was only able to sell the asset after becoming a tax resident in Brazil. This is a useful exemption for those making the transition, for example, because they bought a property abroad and were unable to sell it before returning to Brazil, or have an investment portfolio abroad formed while they were not resident. If the exemption is revoked, income tax will be due in Brazil on the capital gain, regardless of the circumstances in which the asset was acquired abroad.
It's not very clear from your description whether this would be your case or not. In Brazil, anyone who files an income tax return every year is always considered a resident. Unlike other countries, in Brazil we don't have income tax returns filed by non-residents.
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Dr. Tersi,
With regard to investments by individuals abroad, I see that there are different interpretations in the market:
1) investments in the financial market abroad would only be taxed when the investment is fully or partially redeemed, but there is also the interpretation that the investment would be taxed according to the variation in the final capital of each year.
2) With regard to real estate, would the tax be levied only on the sale of the property or would it also be levied every year?
How do you see these points?
Thank you,
Fernando -
Good afternoon Dr. Vinicius. First of all, congratulations for all the enlightening content on your site.
What really worries me the most would be the repeal of the exemption on exchange rate fluctuations for investments originally in foreign currency - a radical and substantial change, especially for resident investors who have held this position for hedging reasons for a long time.
- Would such a measure really have legal validity over the entire cumulative history of the investment? Wouldn't this be a RETROACTIVE measure and therefore unconstitutional? If the revocation of the exemption is somehow maintained in the PM, wouldn't it only have to apply to the exchange rate variation from 01/01/2024 onwards?
- Is it possible to understand what the MP changes about the "triggers" in the timing of income tax on financial investments or taxable foreign exchange gains after 01/01/2024? To clarify: in the case of a simple appreciation of the dollar during a calendar year, without any disposal, is it possible to know in which situations the investor will be taxed, and in which situations, during a subsequent calendar year in the case of a simple devaluation of the dollar, will it be possible to compensate?
Thanks for any clarifications!
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What is your opinion on this "Balance Sheet in Reais" for taxation of foreign subsidiaries as of Jan/2024?
I know of countries that consider subsidiaries that act as investment holding companies to be "pass through" companies and simply disregard the company and tax the assets within it as if they were in the hands of the individual, therefore when receiving income and disposing of assets.
I've also seen countries that tax that company's profit (IN THE COMPANY'S CURRENCY). If it earned $100,000, that's taxed. But taxing on the difference between "Value in Reais in Dec/2024" and "Value in Reais in Dec/2023" seems to me to be creative accounting in order to always have something to tax. The exchange rate variation of all assets would be taxed, an exaggeration in my opinion. Your opinion? -
Good morning Vinicius, first of all congratulations on the clarity and quality of the above text.
I'd like to ask a question: in the event that I make a permanent tax exit from Brazil, I understand that I can keep real estate and financial assets in Brazil, correct? In the case of real estate, will I still have to pay IPTU, for example? And in the case of financial assets, the tax should be levied at source through the agent / representative I appoint in Brazil, correct?
In this case, when it comes to a future inventory, I understand that I won't be subject to the rules and laws of Brazil, but of the country where I will have my tax residence (in this case, Italy), correct?
Thank you in advance for your clarification. Paulo. -
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Tersi, in the non-taxation agreements between Brazil and other countries such as China, I understand that we can be absent from Brazil for more than a year and continue to do income tax normally here. Is that correct?
If the income tax collected in China is 10% , will we have to pay the remaining 17.5% in Brazil to complete the 27.5% or is the agreement independent of the amount of tax paid there?
We have the example of the United Arab Emirates, which has an agreement with Brazil and there Ir is zero!
In this case, if we don't give a tax exit, do we end up having to pay 27.5% to go to Brazil and work there? -
Hello, Vinícius,
First of all, thank you very much for all the content on the site.
I'd like to ask what the new law will mean for non-taxation agreements. Would investments already taxed in Portugal, for example, be taxed in full?
Will the tax on exchange rate fluctuations also apply to amounts in current accounts?Thank you
Karina -
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