EN 
BR Those who leave the country permanently can invest in Brazil, but the regulations excessively restrict the freedom of non-resident investors.
We often receive questions about how to maintain regular financial investments after leaving the country for good, especially when the intention is not to redeem them but to keep them invested in Brazil.
Unfortunately, the IRS and the Central Bank do not cooperate with each other on this issue, which makes the task of coming up with a simple and easy solution quite difficult. We recognize that this is far from ideal, and we sincerely want to see this changed in our legislation.
To understand how this lack of collaboration affects practice, it helps to keep in mind that we have two different problems:
1. Permanent Departure from the Country - From the Tax Point of View
From a tax point of view, the IRS expects each taxpayer, after submitting the final tax return, to notify the paying sources (banks and brokers) of their tax withdrawal, so that they can withhold income tax under the non-resident code. Despite this obligation, the tax legislation does not provide for a fine for failing to notify the sources of payment of the tax withdrawal.
If the taxpayer fails to comply with the obligation to report, the source of payment will continue to inform the IRS every year of the gains and income earned under the tax resident code. According to the IRS's position on the matter, the practical consequence is that the source of payment can only be held responsible by the IRS for payments made after being notified, even if they have been made incorrectly. We therefore believe that the letter of communication to the source of payment serves as proof of the taxpayer's exemption from liability for errors made by the source of payment after the letter has been delivered.
A second consequence is that the annual tax return is mandatory for tax residents in Brazil who have earned income above a certain threshold (currently R$ 40,000/year). If the paying sources continue to report income as a resident, and this income exceeds this threshold, the taxpayer's CPF record may change from "regular" to "pending regularization", and will remain so as long as no income tax return is filed.
We have already had the experience of regularizing the situation of the CPF described without jeopardizing the tax exit, but the procedure requires personal appearance at a specific unit of the Federal Revenue Service, with presentation of proof of residence abroad and communication to the sources of payment, even if out of season.
It is also worth adding that, under the general regime, non-residents' financial investments are subject to the same taxation as tax residents in Brazil. Thus, with a few exceptions, the tax exit is neutral as regards the amount of tax due on income from financial investments held in Brazil. At least for this type of non-resident income, the tax authorities are not being directly harmed.
2. Permanent Departure from the Country - From an Exchange Point of View
From a foreign exchange perspective, however, the issue is more complex. Although tax legislation provides for a general regime and a special regime for non-resident investors, the Central Bank's current regulations are quite restrictive. As a rule, non-residents can only invest in savings accounts, CDBs and private pension funds. For other investments in the financial and capital markets, the investor must comply with the rules of the Central Bank. Resolution no. 4.373/2014 (registered as "Investor 4.373"), which correspond to the special regime of the tax legislation.
Although the special regime is taxed more favorably than the resident regime, with various exemptions, it is aimed at institutional investors, not individuals. In it, a financial institution becomes the investor's proxy and charges fees for maintaining the investor's account. compliance required by the Central Bank and the Securities and Exchange Commission (CVM). As far as we know, this maintenance cost is currently in the range of R$ 3-5 thousand/month, which is prohibitive for most people who decide to live in another country without redeeming their financial investments in Brazil.
Foreign exchange legislation is primarily aimed at supervising the financial and foreign exchange market, so those most affected by the regulations are the banks and brokers, not the clients. As such, what we have observed is that banks and brokers do not usually have adequate information to offer their clients who cease to be tax residents in Brazil, nor do they have a clear policy on how to proceed. In our professional experience, we have already heard of the following:
- institutions that preferred that their clients did not formally notify them of the fact that they had left the country, under penalty of terminating the relationship; and
- institutions that allow you to keep the investments you made as a resident, but do not allow you to make new investments.
In both cases, we believe that these institutions continue to report their income to the Receita Federal using the tax resident code in Brazil, which brings us back to the problems we have already described in relation to the CPF. These situations are irregular and unfairly punish those who want to organize their businesses correctly.
It is our opinion that exchange regulations are largely responsible for this scenario. In this respect, the current rules run counter to the goal of facilitating access to the financial and capital markets for small investors, and are detrimental to the development of the Brazilian market. Before restricting freedoms, it would be advisable for the Central Bank, the CVM and the Federal Revenue Service to communicate with each other, each within the scope of their competence, and to listen to financial and capital market participants on the issue.
I also recommend reading the text with guidelines on the subject "Declaration of Final Departure in 2019: what you need to know"in which the differences between the general regime and the special regime are dealt with in greater detail.
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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Vinicius Tersi
Check out more posts on taxation and estate planning at information for residents abroad.
This text about Leaving the country for good and investing in Brazil was prepared by Vinícius Tersi Advocacia, a law firm specializing in International Tax Consulting.
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