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I live abroad but I have earnings above the minimum required by the declaration in Brazil. How should I proceed?

The IRS receives information from Brazilians paying sources (banks, brokers, real estate agents) regarding the income of each taxpayer. If the paying source has not been notified about the taxpayer’s tax outflow, it will continue reporting income as if the resident taxpayer were. This conflicts with the information provided by the taxpayer who is no longer a resident.

Problems arise for non-residents who receive income above certain amounts (R$40 thousand per year for exempt, non-taxable or exclusively taxed income, for example). Once the limit is exceed, the annual’s adjustment declaration submission is mandatory for anyone who was reported as a resident by the paying source. If the declaration is not delivered, taxpayer’s CPF becomes pending regularization until the problem is solved and is restricted to carrying out financial operations.

What to do depends on the specific each payer’s situation. Below are the most frequently seen cases in practice:

For those who live abroad without formalizing the tax exit

In this case, it’s necessary to know if the person has actually fulfilled the requirements to stop being a tax resident in Brazil, even if he has not formalized the tax exit. This is the case of the temporary exit, in which the taxpayer left Brazil and never filed a tax return again. Under Brazilian law, a person becomes a non-resident when he/she completes 12 months of absence from Brazilian Territory.

For this case, it is recommended to present the Definitive Exit Statement (DSD – Declaração de Saída Definitiva) for the calendar year related to the temporary exit date. After that, communication letters to the paying sources are prepared.In cases where the departure’s calendar year has already been reached by decay (more than five years), it’s no longer possible to transmit the DSD. In this case, it is necessary to perform a due diligence before the Federal Revenue unit responsible for the CPF and present documentation that provides the tax residency abroad and the paying sources communication.

For those who formalized the tax exit without communicating the paying sources

In our experience, this is the most common case. For those who maintain bank accounts and financial investments in Brazil, communicating the payment source in general means ending the current relationship and opening a non-resident or domiciled account abroad (CDE). For this reason, the banks themselves sometimes discourage the taxpayer from informing them about the tax exit.

For this case, lowering the tax pending means communicating the paying sources first and then performing a due diligence before the Federal Revenue Unit responsible for the CPF and presenting documentation that proves the tax residency abroad and the communication of the paying sources. For this reason, it should be analyzed whether there is an interest in maintaining financial resources in a CDE or not.

For those who intend to maintain double tax residency

For those who live abroad and prefer to remain a tax resident in Brazil (because they intend to return in the future and prefer to keep financial investments as they are, for example), it is necessary to present the Brazilian declaration, informing the income and equity of a foreign source.

For those countries that have an agreement with Brazil to avoid double taxation, it is possible to use the agreement’s benefit to offset the tax due abroad against the Brazilian tax or to stop taxing income from a foreign source in Brazil. For the others, is it worth knowing there is reciprocity treatment with Brazil to allow at least the tax due abroad’s offset.

For those who are in doubt between the tax exit and the double tax residence

In situations of doubt, I invite you to read this text, which deals with vectors to make a well-informed decision on this point. In this blog you will find relevant and updated information on the subject, in addition to guiding you to avoid problems with Tax Authorities and other authorities. Feel free to tell us about your experience, to share the content with other friends who need guidance and to get in touch with us via e-mail contato@tersi.adv.br or via Whatsapp (61) 99683-8894. Click here to send us a message now.

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A big hug,

Vinicius Tersi.

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Vinicius Tersi é advogado, especialista em Direito Tributário Internacional.

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