The tax system in Brazil

tax in Brazil
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Updated 2022-03-25 11:04

If you earn income in Brazil, you'll have to pay a graduated tax to the Receita Federal, Brazil's federal taxing authority. Capital gains, on the sale of property in Brazil, are also subject to tax. Even if you pay tax in Brazil, you may also still have a tax liability and need to file a return in your previous country of residence. Taxation can quickly become complicated, especially when multiple taxing authorities are involved, so if you're earning income in Brazil, you're strongly encouraged to consult an expert versed in international taxation.

Income tax

If you live in Brazil and earn a regular income, you'll be expected to pay income taxes on those earnings according to a graduated scale. This is true even if you're not considered a legal resident in Brazil (for example, if you're working on a project on a short-term basis in Brazil), although the taxes due in Brazil may be reduced if taxes are paid on the earned income in another country with which Brazil has a tax treaty.

If you're considered a resident in Brazil, then you may also be expected to pay taxes on income earned from sources outside Brazil, unless a double-taxation treaty covers those earnings.

What constitutes a resident in the nation? If you have a permanent visa or if you have a temporary visa and stay in the country for over 183 days over 12 months, then you're considered a resident legally.

Income tax treaties

Brazil has signed tax treaties with several countries to avoid double taxation, and additional treaties are in negotiation. What does this mean for you if you're from one of the countries on the list? You won't be taxed in both Brazil and your home country. Instead, you'll pay taxes only in Brazil.

The countries that already have an income tax treaty with Brazil include:

Austria, Argentina, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Peru, Philippines, Portugal, Russia, Slovak Republic, South Africa, South Korea, Spain, Sweden, Trinidad & Tobago, Turkey, Ukraine, and Venezuela

These are the countries where treaties are in progress and you should keep an eye on if you're from one of them:

Singapore and Uruguay

There have been a few countries that have been added to the income tax treaty as of January 2022. They are as follows:

Switzerland and United Arab Emirates

For expats who are from the United States, the United Kingdom, or Germany, rest assured that you won't be double-taxed as well. There's a reciprocal tax treatment between these countries and Brazil, which means the taxes you pay in these the countries will be offset on the income tax you pay in Brazil.

There's also the case of totalization agreements. This is where you won't be double-taxed on social security and public healthcare system payments.

Brazil has totalization agreements with the following countries:

Ibero-Americano Multilateral Agreement (Argentina, Brazil, Bolivia, Chile, Ecuador, El Salvador, Spain, Paraguay, and Uruguay), Mercosul or Southern Common Market Agreement (Argentina, Paraguay, Uruguay, and Brazil), Belgium, Canada, Cape Verde, Chile, France, Germany Greece, Italy, Japan, Luxembourg, Portugal, South Korea, Spain, Switzerland, Quebec, and the United States

There are also totalization agreements in progress. The countries are as follows:

Bulgaria, Israel, Mozambique, Portuguese Speaking Countries Multilateral Agreement (Angola, Cabo Verde, Guinea Bissau, Mozambique, Portugal, Sao Tome and Principe), and East Timor

There are also a few countries in which the totalization agreement is under negotiation. They are:

China and India

Income tax rates in Brazil

The maximum tax rate in Brazil is 27.5%. Effective taxable income may be reduced by expenses related to insurance, medical treatment, or studies.

You're now probably wondering what taxable income is in the first place. The most obvious would be the money paid to you by a Brazilian employer. However, there are other types of taxable income. They include investments made in Brazil and the income generated, any income you've generated from abroad (which includes things like interest, rent, dividends, and regular wages), and capital gains from your assets, both in Brazil and abroad.

Here's the current graduated income-tax scale (subject to change):

Annual income (Brazilian reals) rate applied

  • R$0 to R$22,847.76: 0%
  • R$22,847.77 to R$33,319.80: 7.5%
  • R$33,319.81 to R$45,912.60: 15%
  • R$45,012.61 to R$55,976.16: 22.5%
  • Over R$55,976.16: 27.5%

If you have capital gains, then here's the withhold tax rates scale:

  • Up to R$5 million: 15%
  • R$5 million to R$10 million: 17.5%
  • R$10 mililon to R$30 million: 20%
  • Over R$30 million: 22.5%

The above capital gains tax will apply to sales made in art, collectibles, vehicles, and real estate. The good news is, if you're a non-resident, this tax only applies to assets you sell in Brazil. Of course, there are always exceptions, so it's best to check with an accountant if you're ever unsure of things.

Good to know:

Non-resident expatriates (such as those who are in Brazil on a job contract basis with less than six months' duration) are subject to a tax rate of 25%. If you're a resident in Brazil and you intend to travel for an extended time, you must provide a release document to avoid losing your residency status. However, you'll remain liable for taxes for a year.

Important:

If you earn income in Brazil, you must file your return to the Brazilian tax authorities no later than by the end of April of each year.

Stock options

If you've got stock options, then you're probably curious as to how much you'll be taxed. The issue here is that this area isn't particularly regulated. You may or may not be taxed, but it's likely you will be. If you are, then it's likely to be a flat rate.

How to file income taxes

As we've just mentioned, you need to file your income taxes before the 30th of April every year. Not only do you need to file if you earned over R$22,847.76, but you also need to file if you own properties in the country and the total value is over R$300,000. You'll also need to file if you have capital gain in the Brazilian stock market or if you have bank investments of over R$40,000 that are in exempt income. In addition to reporting your Brazilian income, you also need to report any that's coming in from other countries.

There's also something called the Declaration of Brazilian Capital Located Abroad (CBE). It may not apply to many people, but it's still important to know. If you have assets abroad and they're valued at over $1,000,000 (USD), then you'll need to fill out a CBE before the 31st of December of the year you became a resident. So for example, if you became a resident in early 2020, then you'll need to file a CBE by December 31, 2020.

There are two ways you can file your income taxes: complete or simplified.

The complete income tax return is more convoluted, and therefore, will take more time. However, if you have dependents and deductible expenses, then this is the better form for you to fill out.

The simplified income tax return is, as its name suggests, simple. Basically, you'll get a 20% reduction on all taxable income from the year. The limit is R$16,754.34. It's most ideal for those who are single, have just one income source in the country, and don't have deductible expenses. In other words, if you lead a simple life on your own, then use the simplified income tax return.

Income tax refunds

In some cases, you'll receive a refund for income taxes. You'll need to have a personal Brazilian bank account to receive the refund; the government won't give you cash. So while it's possible to get by in Brazil without a bank account, if you're living in the country long term, it's highly recommended you get a bank account. Not only will it make your life easier, but it'll also make it possible to receive income tax refunds.

Additional payments

In other cases, you'll owe the government extra money. If this happens to you, you can use a bank voucher to pay this amount. Make sure you do so before the deadline, as you'll have to pay a penalty if you miss it.

Other taxes

Capital gains from sales of real estate are taxed at 15%, and gains from the sale of securities on a public stock exchange are taxed at 20%. Capital gains are expected to be paid at the moment the gain is realized (not the following April).

A local property tax, termed IPTU, must be paid by either the property owner or tenant. This tax is generally low by international standards, typically between 0.5% and 1.5% of the value of the property per annum. Depending on the locality, it may be paid annually or monthly. Note that long-term renters are generally expected to pay IPTU, and it isn't included in the quoted rental amount.

Value-Added Tax (VAT)

In many countries, you'll have to pay value-added tax (VAT) on certain services and goods. State taxes are called ICMS. You'll need to pay special attention to VAT (ICMS) laws in Brazil if you're a freelancer, as it's your responsibility to charge clients and customers for the services and/or goods you provide.

For 2022, the values are as follows:

  • From south and southeast Brazil to south and southeast Brazil: 12%
  • From north, northeast, and midwest Brazil to any Brazilian state: 12%
  • From south and southeast Brazil to north, northeast, and midwest Brazil: 7%

For the last value, these areas include the state of Espirito Santo.

If you do business in São Paulo, then there's a special VAT rate here. The usual rate is 18%, although there are certain products and services that can be taxed as high as 25% or as low as 12%.

Brazilian income tax reform

In recent years, there have been talks of an income tax reform. Here are a few key talking points, should they relate to your situation.

First of all, the taxation of dividends has been proposed. This was actually excluded from the nation's tax system in 1996, so this would be a significant change for many. Should this go through, then a withholding income tax of 15% would be applied on dividends paid. The initial draft suggested 20%, but it was dropped to 15%.

What's interesting to note is that if the taxation of dividends goes through, this would be applied to any paid on retained earnings from any periods before 2022.

As a result, you can expect to see many lawsuits in Brazil if dividend taxation comes into play. This is because the Brazilian Constitution doesn't allow retroactive taxation on income.

If this has you worried, then there's some good news. There would be some exceptions to this. If you're a legal entity using the Simples Nacional tax regime, are a local individual shareholder under the Lucro Presumido tax regime and the company has under R$4.8 million, or are a Brazilian legal entity that's subject to common corporate control, or the company owes at least 10% share for the dividend-paying company. You're also exempt if no capital reduction was done in the last 5 years, or has it been implemented then.

Another part of the tax reform would lower tax rates, depending on the level of the company involved. For example, it'd be reduced from 15% to 8% for income generated past R$240,000. When you put together all the components, then the corporate tax rate would go from 34% down to 26%. However, if there's a dividend pay-out policy of 100%, then this can go from 34% to 37.1%.

As with any reform, there are both pros and cons to this reform. To better understand how it'll impact you, you should consult with an accountant for the full picture.

Useful links:

Ministry of Taxes of Brazil

Tax treaties

VAT information

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