Residents abroad with income above the minimum required for declaration in Brazil. How should I proceed?

The IRS receives information from Brazilian paying sources (banks, brokers, real estate agents) about each taxpayer's income. If the source of payment has not been informed of the taxpayer's tax withdrawal, it will continue to report income as if the taxpayer were resident. This conflicts with the information provided by residents abroad with income above the minimum in Brazil.

Problems arise for non-residents who receive income above certain amounts (for example, R$ 40,000/year for income that is exempt, non-taxable or taxed exclusively at source). Once the limit has been exceeded, it is compulsory to submit the annual tax return for those who have been reported as resident by the source of payment. If the tax return is not submitted, the taxpayer's CPF is placed in "pending regularization" status until the problem is resolved, and the taxpayer is restricted from carrying out financial transactions.

What to do depends on the specific situation of each taxpayer. Below are the most common cases in practice:

Residents abroad with income above the minimum without having formalized the tax exit

In this case, it is necessary to know whether the person has actually met the requirements to cease to be a tax resident in Brazil, even if they have not formalized the tax exit. This is the case of "temporary departure", in which the taxpayer left Brazil and never filed an income tax return again. Under Brazilian law, a person becomes a non-resident when they have been absent from Brazilian territory for 12 months.

In this case, it is advisable to submit the Definitive Exit Declaration (DSD) for the calendar year relating to the date of the "temporary exit". After this, the letters of communication to the sources of payment are drawn up. 

In cases where the calendar year of the exit has already expired (more than five years), it is no longer possible to transmit the DSD. In this case, it is necessary to make an inquiry to the Federal Revenue unit responsible for the CPF and present documentation proving tax residency abroad and communication from the paying sources.

Residents abroad with incomes above the minimum who formalized the tax exit without informing the paying sources

This is the most common case, in our experience. For those who keep bank accounts and financial investments in Brazil, notifying the source of payment generally means ending the current relationship and opening a non-resident or foreign domiciled account (CDE). For this reason, the banks themselves sometimes discourage taxpayers from informing them of the tax exit.

In this case, clearing the tax backlog means notifying the sources of payment first, and then carrying out due diligence at the Federal Revenue Service unit responsible for the CPF and submitting documentation proving tax residency abroad and notification of the sources of payment. For this reason, it must be analyzed whether there is an interest in keeping the financial resources in a CDE or not.

For those wishing to maintain dual tax residency

For those who live abroad and prefer to remain tax resident in Brazil (for example, because they intend to return in the future, and prefer to keep their financial investments as they are), it is necessary to file a Brazilian tax return, reporting income and assets from foreign sources. 

For those countries that have an agreement with Brazil to avoid double taxation, it is possible to use the benefits of the agreement to offset the tax owed abroad against the Brazilian tax, or to stop taxing foreign source income in Brazil. For the others, it is worth finding out if there is reciprocal treatment with Brazil to allow at least the offsetting of the tax due abroad.

For those in doubt between tax exit and dual tax residence

When in doubt, I invite you to read this text, which deals with vectors to make an informed decision on this point.

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.

Check out more posts on taxation and estate planning at information for residents abroad.

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A big hug,

Vinicius Tersi

This text about foreign residents with incomes above the minimum was prepared by Vinícius Tersi Advocacia, a law firm specializing in International Tax Consulting.