In order to keep and maintain his CPF (Cadastro de Pessoa FÀsica – Physical Person Registration – a kind of Brazilian Social Security) number valid, a foreigner living in Brazil has to file an income tax declaration or a declaration of exempt every year (except the year he has received the CPF).
Depending on taxable income and other circumstances there are two options of declaration:
1. Declaração de Imposto de Renda (tax declaration):
If you earn 12,696.00 reais or more per year. For a complete list of circumstances where one is obligated to do such declaration, please visit the Receita Federal homepage at:
http://www.receita.fazenda.gov.br/PessoaFisica/IRPF/2005/Orientacoes/Obrigatoriedade.htm
2. Declaração de Isento de Impostos (tax exemption):
If you don’t have income in Brazil or if it is less than 12,696.00 reais per year. For a complete list of circumstances and requirements to do such declaration, please visit the Receita Federal homepage at:
http://www.receita.fazenda.gov.br/PessoaFisica/Isento/2005/Orientacoes/default.htm
Such declarations can be made by your attorney, CPA, agent or by yourself via Internet on the website of Receita Federal at www.receita.fazenda.gov.br.
The Declaração de Imposto de Renda is usually done in March and April and the Declaração de Isento de Impostos, in October and November of every fiscal year.
Be careful when filling out the forms, as the information provided can cause legal consequences. When in doubt always consult a professional.
If you failed to file one of these declarations for the first year, your CPF will have a notation on your number and, if you don’t do any of these two declarations for two years your CPF will be suspended.
In order to reactivate the CPF you will have to go to the nearest office of Receita Federal (IRS) and justify why you did not do the declaration. If your justification is accepted, you will most likely have to pay a fee and your CPF will be reactivated. This process, however, can be a big hassle especially for those who do not speak Portuguese fluently.
Another important aspect is that Receita Federal will permanently revoke all the CPFs when one more than one number is found to belong to a single person.
Tax Basics in Brazil
Q. What is the tax year?
A. For income tax purposes, the fiscal year is the calendar year. However, for an individual, the taxable period is the calendar month, not the year. An annual calendar year tax declaration also is required, and the tax rates are annualized to even out the fluctuations of monthly income.
Q. How will I be taxed in Brazil?
A. If you are a resident your income will be subject to personal income tax (at graduated rates of maximum of 27.5%).
If you are non-resident, you are taxable only on income from Brazilian sources, at a rate of 25% at source (15% if unearned income). There is no tax on foreign income (i.e., income received abroad), or obligation to file an annual income tax return, until you become resident.
Q. How is tax residence determined?
A. A Brazilian national is always regarded as resident in Brazil unless he or she leaves the country permanently. If you are the holder of a permanent visa or a temporary work permit visa you will be regarded as a resident upon arrival in Brazil.
If you are not a Brazilian national and come to Brazil for any other reason you will be treated as resident for tax purposes if you stay in Brazil for more than 183 days (consecutive or not) in any 12-month period. In such circumstances your initial residence period will start on the day following the date you exceed the 183-day period.
Residence status, once acquired, continues for 12 months after final departure from Brazil unless tax clearance is obtained. This should be obtained when leaving Brazil to become a non-resident.
Q. Are there any regional or state taxes?
A. There are no regional income taxes imposed in Brazil.
Married couples are taxed jointly on all income if one spouse has no income and is listed as a dependant on the other spouse’s return. In all other cases, married couples are taxed separately.
Q. What rate of tax will I pay in Brazil?
A. Graduated rates apply to all income except certain Brazilian investment income, which is subject to a flat rate. The rates are the same for married and single individuals.
Q. Can I claim a tax deduction for charitable contributions?
A. The full amount of qualified charitable contributions to approved Brazilian charities is allowed as a credit against tax liability, subject to a limit of 6% of the total tax liability.
Q. Are any other tax deductions available?
A. The following deductions are allowable for all resident individuals:
* Alimony and court-ordered child support.
* Certain pension payments to persons over age 65
* Expenses deductible in computing self-employment income
* Payments made to certain medical professionals and hospitals
* Education expenses (up to a limited annual amount of R$ 1,998)
Resident taxpayers are also entitled to a deduction for their dependents in computing monthly taxable income, and annual taxable.
Q. I will also be paying tax in my home country. Am I being taxed twice?
A. No. A foreign tax credit will usually be claimed on your home country tax return for Brazilian taxes paid on Brazil-source income. Alternatively Brazilian source income may be exempted on your home country return. The method used to mitigate double taxation will depend on your home country’s tax legislation, and the nature of any tax agreement between Brazil and your home country.
Tax – Administration
Q. Do I need to file a Brazilian tax return?
A. All tax residents who earn in excess of a fixed amount per year must file a Brazilian Tax Return.
All tax residents holding assets and investments (including shares) located abroad must also present a specific declaration (the so called Capitais Brasileiros no Exterior – CBE) to the Brazilian Central Bank disclosing such assets and investments. Failures or omissions will be subject to heavy penalties. The due date for the declaration is the last working day in May of the year following the applicable tax year.
Q. When does it need to be filed?
A. Taxpayers must file income tax returns by the last working day of April of the year following the applicable tax year.
Q. What is the procedure for paying tax?
A. Brazil has a system of monthly withholding from income. Payments must also be made by the taxpayer in respect to income not subject to withholding.
In general, individuals with income that is not subject to withholding (in the case of expatriates, this includes offshore compensation, interest, dividends, rents, etc., but not capital gains) are subject to a monthly payment of income tax (carnê leão) calculated at the monthly rates.
The advance payment must be paid on or before the last working day of the month following the month when the income was received. Payments are made via voucher at any commercial bank. The advance payment is credited against the liability of the annual income tax.
Withholding and carnê leão are both calculated using the monthly tax rates on monthly taxable income (gross less allowances for dependents, social security, etc.). An individual may compute the tax on income subject to and not subject to withholding reduced by the tax actually withheld to arrive at additional total tax due. This computation method eliminates the duplication of the lower rates. If this method were not used, the underpayment would be due with the annual return.
When the annual return is filed, the liability is determined, and the balance due can be paid in one lump sum or divided into six monthly payments. When the installment method is chosen, the first payment is without interest and the remaining five payments are subject to interest at the monthly average rate of federal treasury bonds (SELIC).
Tax – Income from employment
Q. Will non-cash compensation be taxable (e.g. housing)?
A. Housing allowances or company-provided housing is taxable to an employee at graduated rates.
Other benefits received by an employee from an employer, such as moving expenses, home leave, and language lessons and use of a car may not be fully taxable if structured in certain ways.
Q. I will be working in different countries while living in Brazil. Will all of my employment income be taxable in Brazil?
A. Residents of Brazil are subject to Brazilian income tax on worldwide income regardless of the source of that income.
Non-residents are subject to income tax on Brazilian-source income only. It should be noted that in most cases, the source of payment is used to determine the source of income. Therefore payments made in Brazil will be considered to have a Brazilian source and payments made outside Brazil to have a foreign source, and so non-residents should arrange for payments of income to be structured efficiently.
Tax – Other
Q. Will I pay Brazilian tax on investments and rental income generated in my home country?
A. Residents of Brazil are subject to tax on worldwide income, although foreign tax relief is available under tax treaties, when applicable, or unilaterally under Brazilian tax laws.
Foreign tax credits are allowed in Brazil in accordance with the terms of a specific treaty. Unilaterally, a resident in receipt of non-Brazilian-source income may credit the income tax paid to the foreign countries against the Brazilian income tax on such income, provided that the country taxing the income grants reciprocal relief to its residents for Brazilian tax on Brazilian-source income. A credit for foreign taxes cannot exceed the amount of Brazilian tax on that income.
It should be noted that mortgage interest is not deductible in calculating taxable rental income.
Q. Does Brazil have a Capital Gains Tax regime?
A. Capital gains of Brazilian residents are subject to a 15% tax, which is not credited against the liability for the year. Gains from the sale of securities on a public stock exchange are subject to a tax rate of 20%. The tax is paid on a payment voucher at a bank in the same manner as tax on income not subject to withholding. Individuals are not entitled to relief for losses against other income, but are allowed, under certain limits, to net gains and losses from sales of securities on a Brazilian public stock exchange.
The following capital gains are exempt from tax:
* Gains from the sale of a single real estate, provided that a similar sale has not taken place in the previous five years and the total value of the sale does not exceed a specified amount (440,000 reais in 2004).
* Amounts received from the sale of assets with a sales price of less than 20,000 reais per month.
* Amounts received from the sale of securities on a Brazilian public stock exchange with a sales price of less than 4,143.50 reais per month.
* Assets sold during a period of Brazilian residence which were acquired during a non-resident period.
Non-resident individuals are generally subject to a flat rate of 15% on gains of properties located in Brazil.
Note that tax treaties could affect the tax rates described above.
José C. Santiago is a licensed attorney in Brazil and a licensed real estate agent and certified paralegal in the U.S. You can visit his homepage: www.josecsantiago.com and contact him at jsantiago@eliteinternational.com.