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Brazilian Expatriates - Tax Considerations

Tax Considerations regarding immigration related to the oil and gas industry.

Tax considerations regarding deploying foreign workers into Brazil

The facts and circumstances of each case will determine the most appropriate visa that should be applied for and ultimately granted by the Brazilian authorities. There are, however, variations in the Brazilian tax treatment for each foreign worker based on their visa status and number of days in Brazil. Organizations should be aware of this information.

The type of residence permit that a foreign national is granted can determine his or hers Brazilian tax residency status and thus the extent to which he or she is subject to taxation in Brazil.   

Resident and Non-resident Individuals

Resident individuals are taxed on a worldwide and a cash basis for each tax year (January 1st to December 31st, except for the arrival and departure years), whether or not their income is remitted to Brazil. Non-residents by contrast are only taxed on income from Brazilian sources.

The table below summarizes the residency status applicable to each type of residence permit.

 

Visa Type
Residency Rule
Visitor Visa Non-resident¹
Residence Permit with a local employment contract Resident as from first date of entry in Brazil with a valid visa
Residence permit without local employment contract Resident after completing 183 days (consecutive or not) of presence in Brazil within a 12 month period commencing from the first date of entry


¹ If the period determined by the immigration authorities is respected (90 days, renewable once for an equal period).

Taxable Income

Taxable income includes wages, salaries, bonuses, consulting fees and commissions, premiums, director’s fees, dividends and interest from foreign sources. It also includes most allowances connected with employment, such as housing, education and home leave.

Taxable income also includes gains realized on the disposal of assets, including rights.

 

Income Tax Withholding (IRRF- Imposto de Renda Retido na Fonte)

Individuals are subject to withholding tax at source in respect of remuneration earned or paid from local sources (legal entities). This is the case even if part of their activities is performed outside of Brazil. The payer remains responsible for withholding and remitting the taxes to the Brazilian authorities. 

Taxes withheld are treated as an advance payment and credited against a taxpayer’s final annual tax liability.

The withholding income tax levied on Brazilian tax residents is calculated based on the progressive table detailed below (calendar year 2019):

 

Monthly Tax Basis (BRL) Rate % Deductible Portion (BRL)
Up to 1,903.98 - -
From 1,903.99 to 2,826.65 7.5 142.80
From 2,826.66 to 3,751.05 15 354.80
From 3,751.06 to 4,664.68 22.5 636.13
Over 4,664.68 27.5 869.36


Different withholding rates apply to income received by an employee in relation to the Profit Participation plan.

Brazilian Monthly Income Tax (“Carnê-Leão”)

Brazilian tax residents are taxed on their worldwide income. Monthly advances of tax are required regarding every income that is not subject to withholding taxes. 

This tax is commonly referred to as “carnê-leão” and is calculated on a monthly basis using progressive tax rates, which vary from 0% to 27.5%, as described in the tables above.

Income subject to carnê-leão can include income from the following sources (non-exhaustive list):

  • Remuneration received via a foreign payroll;
  • Other taxable income from Brazilian sources not subject to withholding taxes (for example: rental income);
  • Personal income from foreign sources (e.g., interest, dividends and rental income).

The tax is due on the last business day of the month following the month in which the income was received.

It is important to note that the obligation to comply with monthly withholding falls to the individual Brazilian resident and does not concern any employing company. In practice, however, companies do engage professional advisors to help foreign employees manage their obligations, as it is common for companies to cover part or all of the Brazilian taxes on employment income, under a tax equalization program. Moreover, the rules are complex and the tax authorities can impose penalties and interest if these obligations are not properly met.  

Financial Investments in Brazil

Interests earned on savings accounts in Brazil are exempt from tax. However, interests on Brazilian financial investments in Brazil (certificates, bonds, etc.) are subject to tax ranging from 15% to 22.5%* withheld at source. The Brazilian financial institution is responsible for withholding the relevant income tax and the income is credited net of taxes to the beneficiary (taxpayer).

Dividends received from local Brazilian companies are exempt from taxes.

Interest on net equity (JCP) is taxed solely at source at a 15% flat rate.

 

* In 2005, the tax rates levied on the income earned through financial investments in Brazil were proportionally altered according to their maturity. Investments with maturities: (i) up to 6 months, are subject to 22.5%, (ii) from 6 months and 1 day to 12 months, are subject to 20%, (iii) from 12 months and 1 day to 24 months, are subject to 17.5%, and (iv) of more than 24 months, are subject to 15%.

Capital Gains

Both resident and non-resident taxpayers are subject to income taxes upon the realization of capital gains (15% up to BRL 5 million: 17,5% between BRL 5 and 10 million; 20% between BRL 10 and 30 million; 22,5% over BRL 30 million). The tax must be paid by the last business day of the month following receipt of the sales proceeds.

Residents are subject to a capital gain tax on the sale of worldwide assets and non-residents are subject to this tax only from the sale of Brazilian assets. The gain is calculated by deducting the acquisition cost from the sales proceeds.

Some exemptions are allowed:

  • The sale of foreign assets acquired while non-resident in Brazil;
  • The sale of Brazilian real estate for less than BRL 440,000.00 (conditions apply);
  • The gain from the sale of foreign assets (including stocks) in which the total sale value does not exceed BRL 35,000.00 in one month;
  • The gain from the sale of Brazilian stocks (some exclusions may apply) in which the total sale value does not exceed BRL 20,000.00 in one month.
Other considerations
  • For real estate transactions, reduced rates may be applied based on the year of acquisition of the asset, in accordance with some very specific rules;
  • The exemption of capital gain tax when selling residential properties is also possible if the seller purchases another residential property in Brazil within 180 days after the first sale;
  • Foreign losses cannot offset any other gain or income;
  • Losses incurred on the disposal of Brazilian stock, for example, can only offset gains from the sale of Brazilian stock, within the same or subsequent months. Unused losses can be carried forward to the following tax year(s);
  • Capital gain exemptions and reductions mentioned above do not apply to non-tax residents.
Foreign Currency

The capital gain derived from the sale of foreign currency is taxed at a 15% rate. There is a tax exemption if the total amount sold during a year does not exceed US$5,000.00.   

Foreign Assets Acquired as a Non-Resident
  • Foreign assets acquired before an individual acquires the Brazilian tax residency are not subject to the capital gains tax even if sold at a time the individual is a Brazilian tax resident.
  • The treatment of foreign assets originally bought with Brazilian income (income received from Brazilian sources) differs and the capital gain is calculated by taking into account both the sales price and the acquisition cost in reals (BRL). Thus, the foreign exchange gains eventually embedded in the sales price are taxable when the asset is realized. The loss is not considered as a taxable event and cannot offset potential capital gains computed on the sale of the assets. 

Brazilian Income Tax Return

Brazilian tax residents must file an annual Income Tax Return until the last working day of April, regarding the period between January 1st and December 31st of the previous year.

The Brazilian Income Tax Return must report the following information:

  • Income earned in Brazil and abroad; and
  • Balance of assets and debts in Brazil and abroad.

 

The following items may be deducted from the gross income:

  • Contributions to the Brazilian Social Security (INSS);
  • Contributions to sport, to the child and teenage fund, to the elderly fund, to Brazilian audiovisual projects and to cultural projects, limited to 6% of the tax due;
  • Donations made to the national program of support to oncological attention (Pronon), limited to 1% of the tax due;
  • Donations made to the national program of support to disabled people’s health (Pronas/PCD), limited to 1% of the tax due;
  • Contributions to private pension fund in Brazil, limited to 12% of the gross income;
  • Dependents (deduction of BRL 2.275,08 per dependent, per year).  Please note that the referred deduction can be taken for the following categories: 

- Parents, grandparents, great-grandparents earning less than BRL 1.903,98  per month in the taxable period;

- Spouse;

- Children and stepchildren (up to 21 years old or 24 years old if still in school);

- Brothers, sisters, grandchildren, and great-grandchildren (under taxpayer’s custody and up to 21 years old).

  • Tuition expenses (own or dependents - limited to BRL 3.561,50 per individual, per year);
  • Medical expenses in Brazil and/or abroad (no limit);
  • Payment of alimonies in Brazil or abroad, if the decision is homologated before the Brazilian Superior Court (STJ); and
  • One maid’s salary may be deducted until the limit of BRL 1.171,74 a year from the employer’s contribution of 12% paid on his/her minimum wage (limit valid for calendar year 2019)
  • Instead of the detailed deductions, the taxpayer may elect the standard annual deduction of 20 percent of taxable income up to a maximum of BRL 16.754,34 (for calendar 2019).

When both spouses have incomes, an election may be made to file separate tax returns and pay tax separately, or to have a joint assessment so that their income can be aggregated in the tax calculation.

Brazilian Central Bank Assets Return

Brazilian tax residents who hold assets abroad with a total market value equal to or higher than US$ 100.000,00 (one hundred thousand American Dollars) at December 31st of each year, are obliged to submit the Brazilian Central Bank assets return. (Note that no tax is levied on this return).

Failure to provide the information requested by the Central Bank triggers a penalty of up to BRL250,000.

The information required to prepare such return are:

  • Total foreign investment (e.g. cars, real estate, bank accounts) at December 31st;
  • Country of the investments;
  • Currency of the investments;
  • Total income derived from these investments during the year;
  • Market value as at December 31st for the previous year of the return’s filing; and
  • Nature of the investments.

Exit Tax Return and Departure Notice

At the time of an individual’s departure from Brazil, they must follow a specific departure process that consists in filing the Brazilian Departure Income Tax Return and completing the Departure Notice to be filed with the Brazilian Federal Revenue Service.

The Departure Tax Return must be filed by the last business day of April of the calendar year subsequent to the exit date. In case of late filing, a fine of 1% per month of delay will be charged upon the amount of the calculated tax due.

Moreover, a tax resident who plans to leave the country must also submit a Departure Notice for the Federal Revenue Service by the last business day of February of the calendar year following the departure.

Tax Rates

The table below summarizes the tax rates applicable for different categories of income during both the non-residency and residency periods:

Type of Income Non-residency Period Residency Period
Salary Paid in Brazil 25% Progressive table (up to 27.5%)
Salary Paid outside Brazil n/a Progressive table (up to 27.5%)
Capital Gains – Assets Located in Brazil Progressive table (up to BRL 5 mm: 15%. Higher rates will apply above this threshold) Progressive table (up to BRL 5 mm: 15%. Higher rates will apply above this threshold)
Capital Gains – Assets Located Abroad n/a Progressive table (up to BRL 5 mm: 15%. Higher rates will apply above this threshold)
Financial Gain – Brazilian Source    
(i) up to 6 months n/a* 22.5%
(ii) from 6 months and 1 day to 12 months n/a* 20%
(iii) from 12 months and 1 day to 24 months; n/a* 17.5%
(iv) more than 24 months n/a* 15%
Financial Gain – Non-Brazilian Source n/a Progressive table (up to BRL 5 mm: 15%. Higher rates will apply above this threshold)
Dividend – Brazilian Source Tax exempt Tax exempt
Dividend – Non-Brazilian Source n/a Progressive table (up to 27.5%)
Interest on Savings Account Brazilian Source Tax exempt Tax exempt
Interest on Savings Account Non-Brazilian Source n/a Progressive table (up to BRL 5 mm: 15%. Higher rates will apply above this threshold)

*Brazilian financial investments taxation regime applicable to residents is not available to non-residents, given that there are specific regimes applicable to the latter.

n/a
n/a
Tax exempt
Tax exempt

Transfer of Brazilian Employees Abroad

Under the Law 11962/2009, Brazilian companies that transfer locally hired employees to perform activities of any nature abroad must comply with a series of obligations, such as: collection of contributions to the Severance Pay Fund (FGTS) and the National Social Security System (INSS).

These obligations must be based on the overall compensation of the employees transferred abroad, including transfer allowance, mandatory salary adjustments, paid vacations, air tickets, etc. The period worked abroad and the corresponding compensation are covered by all Brazilian labor rules. This also applies in situations where the legislation of the country where the services are being perform does not require local employers to observe such requirements.

The referred law stipulates procedures that ought to be observed in the following cases:

  • Employees transferred abroad, whose original employment contracts were carried out in the Brazilian territory;
  • Employees seconded to a company domiciled abroad, to work abroad, provided the employment relationship with the Brazilian employer is maintained; and
  • Employees hired by a company domiciled in Brazil to work abroad.

Immigration Considerations

The particularities of the Brazilian oil and gas industry have resulted in the enactment of special rules by the immigration authorities to address the needs of the industry and their professionals. An example of such rules is the two years and six months specific permission for a foreigner to work in a vessel or foreign platform located in Brazilian waters. 

Know more about Immigration Considerations regarding deploying foreign workers into Brazil.

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