Income Taxation

Federal Income Tax (IR - Imposto de Renda)

Individuals who are tax residents in Brazil are subject to federal income tax.
Brazilian income tax rates for individuals are progressive and range from 7.5% to 27.5% for those liable to taxation. The minimum and maximum of each tax rate level is subject to changes each year.

The tax year is a calendar year and income tax returns, for the relevant year, are required to be filed by April 30th following the end of the tax year. Income tax returns are filed electronically with the Brazilian IRS (Receita Federal).

Resident versus Non‑Resident

The taxation of income in Brazil depends on the individual’s tax residence status. A foreign individual who is considered as a tax resident in Brazil will be treated as a “resident taxpayer”. Individuals who did not trigger a tax residency in Brazil (as per local tax rules) may be considered as a “non-resident taxpayer”.

Resident individuals are taxed on a worldwide and 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, while non-residents by contrast are taxed on income from Brazilian sources only.

Besides paying taxes, Brazilian taxpayers are also required to meet a number of tax obligations, such as preparing and submitting tax returns, advance the payment of income tax (withholding or carnê-leão), presenting Brazilian Central Bank assets return, etc., as we will cover next.

Resident Taxpayers

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.

Non‑Resident Taxpayers

If you do not meet one of the residence tests above, you may be regarded as non‑resident in Brazil for tax purposes.

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

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

² Days spent in Brazil, in the same 12 month period, under a business visa are included in the 183 day count.

Taxable Income

Taxable income includes wages, salaries, bonuses, consulting fees and commissions, premiums, director´s fees and dividends and interest from foreign sources. It also includes most allowances connected with employment; examples of these are 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 the withholding and remittance of 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 2021).

*Changes in progressive table may occur.

Different withholding rates are applied to income received by an employee in relation to the Profit Participation plan. 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 a specific progressive rates ranging from 0 to 27.5%.

Brazilian Monthly Income Tax (“Carnê-Leão”)

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

This methodology of tax collection is called “Carnê-Leão” and is calculated monthly using the progressive table.

• Find below an illustrative list of income subject to Carnê-Leão:
• Remuneration received via foreign a payroll;
• Remuneration not paid via a Brazilian payroll;
• Income earned from a Brazilian origin which tax is not withheld at source (e.g., rental, non-hired labor, etc.);
• Foreign sourced personal income (e.g., dividends and rental income.).

The Brazilian Monthly Income Tax (Carnê-Leão) is due on the last business day of the subsequent month in which the income was received by the taxpayer. The late payment of such tax may impose penalties such as fine and interests proportional to the delay on payment.

Financial Investments in Brazil

Interest earned on savings accounts in Brazil is tax exempt. However, interest on financial investments in Brazil (certificates, bonds, etc.) is subject to tax ranging from 15% to 22.5%³ withheld at source. The Brazilian financial institution is responsible to withhold the income tax on the amount to be credited net of taxes to the beneficiary (taxpayer).

Dividends received from local Brazilian companies are exempt from taxation.
Interest on net equity (JCP) is taxed solely at source at a 15% flat rate.

³ In 2005, the tax rates levied on the income earned on 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

Capital Gains

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

Residents are subject to capital gain tax on the sale of worldwide assets and non-residents are subject to capital gain tax only from the sale of assets located in Brazil. The gain is calculated by deducting the acquisition cost from sales proceeds. Some exemptions are allowed:

• Sale of foreign assets acquired while non-resident in Brazil;
• Sales of Brazilian real estate for less than R$ 440,000.00 (conditions apply);
• The gain from the sale of foreign assets (including stocks) in which the total sale value does not exceed R$ 35.000,00 in any one month;
• The gain from the sale of Brazilian stocks (some exclusions may apply) in which the total sale value does not exceed R$ 20.000,00 in any one month.

For real estate transactions, reduced rates may be applied based on the year of acquisition of the asset, an in accordance with some very specific rules.

Exemption of Capital Gain tax on sales of residential properties is also possible if the seller purchases another residential property in Brazil within 180 days after the first sale.

Capital Losses

Foreign losses cannot offset any other gain or income.

Losses incurred on the disposal of Brazilian stock, for example, can offset gains from the sale of Brazilian stock only, within the same or subsequent months. Unused losses can be carried forward to the following tax year(s).

Foreign Currency

The capital gain derived from the sale of foreign currency is taxed at a 15% tax 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 Brazilian tax residency are not subject to capital gains tax even if the asset is sold at a time the individual is a Brazilian tax resident.
• Acquired with foreign sourced income: The capital gain related to foreign assets originally bought with foreign income (income received from Foreign sources) is calculated by taking into consideration the sales price and acquisition cost converted into US dollars (USD). The positive difference will then be converted into reals (R$) based on the rules established by the Brazilian legislation.
• Acquired with Brazilian sourced income: The treatment of foreign assets originally bought with Brazilian income (income received from Brazilian sources) differs and the capital gain is calculated by taking into consideration the sales price converted into reals (R$) and the acquisition cost also in reals (R$). Thus, the foreign exchange gains eventually embedded in the sales price are taxable when the asset is realized.

In both situations, the loss is not considered as a taxable event and cannot offset potential capital gains computed on the sale of assets.

Brazilian Income Tax Return

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

The Brazilian Income Tax Return must present the following information:

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

The following deductions are allowed from 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, 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 R$ 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 R$ 1.903,98 per month in the taxable period;

- spouse;

- children and stepchildren (up to 21 years to 24 years if still in school);

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

• Tuition expenses (own or dependents - limited to R$ 3.561,50 per individual, per year);
• Medical expenses in Brazil and/or abroad (no limit);
• Payment of alimony in Brazil or abroad, if the decision is homologated before the Brazilian Superior Court (STJ); and
• Instead of itemizing deductions, the taxpayer may elect the standard annual deduction of 20 percent of taxable income up to a maximum of R$ 16.754,34 (for calendar year 2021).

When both spouses have income, 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$ 1.000.000,00 (one million American Dollars) at December 31 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 up to R$ 250.000,00.

The information required to prepare such return are:

• Total foreign investment (e.g. cars, real estate, bank accounts) at December 31;
• Country of the investments;
• Currency of the investments;
• Total income derived from these investments during the year;
• Market value as of 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 a specific departure process must be followed. This 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.

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

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

Tax Rates

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

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

Inheritance and gift tax

Inheritance and gift taxes only apply at the State level. Each State has its own rules so it is important to check the local fiscal legislation. In São Paulo authorities apply a 4% flat rate with an exemption of 2,500 UFESP. In Rio de Janeiro the rate goes from 4% to 8% depending on the amounts.

Net wealth tax
There is no net wealth tax in Brazil.

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