For those who live abroad and maintain their tax residency in Brazil for some reason, there is an obligation to submit income from a foreign source to Brazilian taxation. To do this, it is important to know first what income they are.
In Brazil, there are two ways to tax income earned abroad: (i). as a capital gain in foreign currency, as a rule at the rate of 15%, but which admits progressivity to 22.5%; or (ii). as mandatory monthly income (“carnê Leão”), subject to progressive rates, from 0% to 27.5%.
The rules on capital gains in foreign currency apply to the sale of assets or rights acquired abroad and also to the liquidations or redemptions of financial investments held abroad. Interest on said financial investments is also subject to this regime. Taxation is definitive, which means that the tax determined by the transaction is not added to other income for adjustments (calculation of tax to be refunded or to be supplemented).
Compliance with the capital gain legislation in foreign currency implies keeping a record of the dates of the operations carried out, for the conversion of the foreign currency exchange into US dollars and then into reais. It is also important to know the currency of origin of the resources 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 operations number.
In addition, capital gains in foreign currency need to be reported transaction by transaction in the “GCAP” ancillary program and in the annual adjustment statement, and do not allow for loss compensation. This is very disadvantageous, for two reasons: the declaration of these gains is quite laborious, especially for those who hold financial investments or trade shares on the stock exchange. Investments in the variable income market in Brazil, in contrast, are taxed only on net gain, reported month by month and with the possibility of offsetting losses.
As for the payment booklet, it is applicable to all other income from foreign sources, such as salaries, dividends, rents, etc. As the payment book adds up all the income of the month, from Brazilian or foreign sources, care should be taken with the calculation. There is only certainty about the amount of tax due after identifying all the income of the month to be added, which may not be a simple task.
The payment booklet has its own rule for converting foreign currency values into reais. These yields are reported in the coupon form in a specific column on earnings abroad. The tax paid abroad on said income is also liable to 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 gains and income from abroad: how to determine and declare” and “Declaration of Definitive Exit from the Country in 2020: what you should know”.
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