Analysis

Individual taxation

Taxes and contribution in Brazil

Individuals in Brazil are subject to a number of taxes, including personal income tax, social security tax and donation and inheritance tax. There is no local or state income tax for individuals.

Residence

The following individuals are considered residents for tax purposes: (1) an individual who resides permanently in the country; (2) naturalized foreigners; (3) foreigners who hold a permanent visa or a temporary visa with a local employment contract, from the date of arrival; and (4) foreigners who hold a temporary visa but no local employment contract, after completing 183 days (whether or not consecutive) of physical residence in Brazil in any 12-month period.

Taxable income and rates

Residents are taxed on worldwide income, with a foreign tax credit for taxes paid in the country of origin (subject to an applicable tax treaty or bilateral reciprocity). Nonresidents are taxed on Brazilian-source income. The source of income is determined by the location of the payer, regardless of where the work is performed.

Taxable income 

Residents are taxed on their gross income, which includes domestic and foreign-source income, with a foreign credit for taxes paid abroad abroad (subject to an applicable tax treaty or bilateral reciprocity). It is important to mention that the credit of the foreign tax is only on the foreign-source income. 

Gross income is normally taxable whether received in cash or in-kind. Taxable income includes wages, salaries, bonuses, fringe benefits, consulting fees and commissions, premiums, directors' fees, and interest and dividends from foreign sources. It also includes most allowances connected with employment, including housing allowances and allowances for home leave provided by an employer. Schooling allowances are considered indirect salary and taxed accordingly. No distinction is made between personal expenses paid directly by the company or those reimbursed to the individual. Actual moving expenses, however, are generally not taxable.

The formal profit sharing bonuses paid by a Brazilian employer to its employees are exempt only for INSS (social security tax) and severance pay fund purposes. For withholding income tax purposes, the profit sharing bonuses are taxed at progressive rates ranging from 0 percent to 27.5 percent. Dividends received from local sources are tax exempt.

Deductions and reliefs

Taxpayers may deduct certain expenses when calculating monthly income tax liability and other expenses when they file their annual federal income tax return. Deductions permitted in calculating monthly income tax liability include the following:

  • Social security taxes paid by the employee to federal, state or municipal entities;
  • Contributions to private Brazilian pension plans, up to 12 percent of gross income, provided contributions are also made to the official social security;
  • Alimony or child support payments under a court order (special limits apply for alimony paid to beneficiaries resident abroad); and
  • A standard annual deduction of BRL 2,156 (for calendar 2014) per dependent.

The following deductions may be taken when the annual return is filed:

  • Payments by the taxpayer or a dependent for educational expenses, up to an annual limit of BRL 3,375 (for calendar 2014);
  • Payments made and not reimbursed during the year for medical or dental expenses, health insurance plans, or psychotherapy or physiotherapy; and
  • Documented contributions to approved Brazilian cultural, artistic and audiovisual activities and donations to Brazilian Child and Youth Counsels (certain limitations apply).

Instead of itemizing deductions, the taxpayer may elect the standard annual deduction of 20 percent of taxable income up to a maximum of BRL 15,197,02 (for calendar 2014).

Rates

The personal tax rates are as follows (for calendar 2014):

  • 0% on annual income up to BRL 21.453 (no applicable tax rebate);
  • 7.5% for income between BRL 21.454 and BRL 32.151;
  • 15% for income between BRL 32.152 and BRL 42.869;
  • 22.5% for income between BRL 42.870, and BRL 53.565 and;
  • 27.5% for income exceeding BRL 53.566.

Other taxes

Inheritance and gift tax

The ITCMD (Taxation on Donations and Inheritance) is a State tax that levies on donation/inheritance transactions at rates ranging from 4 percent to 6 percent depending the legislation of each State of Brazil

Net wealth tax

There is no net wealth tax in Brazil.

Real property tax

ITR (rural property tax), IPTU (urban property tax) and IPVA (vehicles tax) are due also by individuals.

Social security contributions

Social Security contributions are mandatory for individuals and business according to specific rules.

Compliance

Resident taxpayers are subject to tax on worldwide income on a cash basis for each tax year (January 1 to December 31), whether or not their income is remitted to Brazil. An individual income tax return should be filed by the last workday of April and no extensions of time are allowed.

As general rule, each spouse files their own tax return however, a joint tax return is also permitted, in which one individual includes all household income.

Brazilian Central Bank Assets Return

The individual considered tax resident for Brazilian purposes, who holds assets abroad, which the total market value is US$100.000,00 (one hundred thousand US dollars) or higher as at December 31 of each year, is entitled to submit the Brazilian Central Bank Assets Return. Note that no tax is imposed in this return. Furthermore, in case of failure to provide the information requested by the Brazilian Central Bank triggers a penalty up to R$250,000.

Exit Tax Return and Tax Clearance Certificate

When a Brazilian tax resident leaves permanently the country, a specific departure process must be followed. This procedure aims to cancel the residency status for Brazilian tax purposes and consists of filing the Brazilian Departure Income Tax Return and the completion of a Departure Notice to be filed with the Brazilian Federal Revenue Service.

In case such procedure is not followed, the taxpayer remains considered as tax resident in Brazil for the 12 following months, and, as a consequence, subject to the Brazilian taxation on a worldwide basis, even if he is not physically present in the country.

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