Tax on rental properties and dividends

@antonioggriffin First I want to say how jealous I am everytime I see your image. My wife of 24 years  is working very hard to make me as healthy as possible. This includes not drinking ANYTHING, except for Juice and Water. Needless to say Guarana is only memories.

A few questions to help the experts.

# What is your long-term wish for being in Brazil, do you want to be a resident?

# Of the various Permanent Residence Visa's: Spouse, Investment...you seem to be closer to   

    Investment. Do you qualify or are you close to qualifying for one?

# How long is your "Visitar Visa for"?

# How much do any of your dividends, rentals etc. add up to an Investment in Brazilian property /     

    business?

Good Luck!

Roddie in Retirement

    A possible scenario.
What would an expat options be if:
Visitar visa
Non resident
Single
Has rental properties
Dividends from stocks

**Advice welcome also from non tax advisors**
🙂
   

    -@antonioggriffin

Find and marry a Brazilian spouse and you won't have to worry about taxes as the spouse would take care of that...

Is this a valid option?

Non-Resident

• Rental property income: 15% - note this is paid via Carne Leao, which is a manual process, so you would need to 'make' the payment.
• Dividends: 0% (dividends are not taxed in Brazil)
• JCP (which is like a dividend): 15% - this is deducted automatically, and you don't need to worry about it.

Resident

• Rental property income: 0%-27.5% - the tax brackets are the same as earned income. note this is paid via Carne Leao, which is a manual process, so you would need to 'make' the payment.
• Dividends: 0% (dividends are not taxed in Brazil)
• JCP (which is like a dividend): 15% - this is deducted automatically, and you don't need to worry about it.

Sources:

https://www.brazilcounsel.com/blog/taxation-of-rental-income-in-brazil

https://www2.deloitte.com/br/en/pages/living-and-working/articles/income-taxation.html

11/29/23 @antoniogriffin.  In addition to income taxes to the Receita Federal, the property owner owes IPTU (Imposto Predial e Territorial Urbano), a real estate tax in urban areas, to the municipal government.  This can be paid annually (with a discount), or in monthly installments.

Dividends: 0% (dividends are not taxed in Brazil)
    -@BRBC

IMHO, this is a huge tax break.

If dividends are not taxed, is it not better to incorporate the rental business?   Although a corporation would still pay taxes, this would be a good way to shelter from personal liabilities.

Are there lower tax implications for corporations vs individuals at the same income level?

IMHO, this is a huge tax break.
    -@Pablo888

You could argue that point either way.  The counter point is that the corporation has paid tax on it's profits, and the dividend is a distribution of those profits, so taxing the dividend recipient (who is an owner of the business and those profits) on that already-taxed-income is in effect double taxation.

Regardless the 0% rate is a moot point for us who happen to be US citizens, because the US will still tax you on those dividends as it is part of your global income.

The counter point is that the corporation has paid tax on it's profits, and the dividend is a distribution of those profits, so taxing the dividend recipient (who is an owner of the business and those profits) on that already-taxed-income is in effect double taxation.
    -@BRBC

True, the corporation will need to pay taxes.  But the profits can be squirreled away by stock buy backs and dividend payments - like GM has just announced today.  Conservative accounting would allow the minimizing of the tax liabilities in favor of future investments. 

The only true benefit of getting a corporation is that you would be able to have more levers of control - all at the cost of creating and operating a separate legal entity..... I have done this in the US using LLCs.

I agree, the decision to choose corporation vs individual is a personal one.

Re:  taxation by US authorities - yes that's another issue to deal with.  As a Brazil non-resident, I would prefer to re-invest all net Brazil gains so that I have no taxable income to report to the US.  However, as a Brazil resident, I would move all non Brazil interests into a trust vehicle so that the Brazil authorities is aware of that.

BTW, I heard on youtube somewhere that Brazil does not recognize trusts as separate entities.  How is inter-generation wealth transfer done?

You may want to be a bit cautious about owning foreign assets in a foreign corporation.  The US recognizes something called a Passive Foreign Investment Company:

https://www.investopedia.com/terms/p/pfic.asp

As far as wealth transfer goes, the rules are quite different in Brazil.  Without any documentation in place your assets goes into Inventario, which is probate. What happens from there is the state splits your assets amongst what it  deems your necessary heirs.  I wont do it justice without knowing more of your family circumstances, but there's a good article here:

https://www.lawyerinbrazil.com/articles-2/what-is-the-brazilian-probate-law-procedure/

One step beyond that is to create a Will.  That can be used to direct 50% of your assets to beneficiaries you select, as opposed to you necessary heirs. The necessary heirs then get to share in the other 50% according to how probate court splits it up.

If you want more control there are more complex strategies.  One is to gift property while living to those whom you want to have it.  There are tax ramifications for doing so, however you can put in place a contract called something to the effect of Frutos e Juros, which is fruits and interest.  Basically it would spell out that you have all rights to use of the property and interest while living. For instance if you had a rental property you could gift it to whomever you decide while living, but that contract would state you get to use the property and retain all rental income while living.  The downside is trying to sell the asset if you want out.. because you don't own it anymore. Upon death there's no probate because your beneficiary already owns it.

Finally you can make a corporation in Brazil and transfer you assets into the corporation.  There are tax ramifications of this as well.  Once in place you can put in the articles of incorporation that you control everything while alive.  You then give out a portion of shares to beneficiaries, and when you pass, they already own the correct portion of your assets as you wanted them distributed. As a US citizen you need to take caution here because it could be considered a PFIC, with significant US tax consequences.

Obviously you need a qualified Brazilian estate/family law attorney to evaluate the pros and cons of all these approaches, and help you through whatever you decide.

    A possible scenario.
What would an expat options be if:
Visitar visa
Non resident
Single
Has rental properties
Dividends from stocks

**Advice welcome also from non tax advisors**
🙂
   

    -@antonioggriffin

You are liable to file your earnings on the Brazilian Rental Properties to Brazil's Federal Taxes and the US Federal Income Tax ( FATCA forms ).

Your stocks, if  US based, have no consequence in Brazil, only if you deposit your dividends into a Brazilian Banking Account.

@roddiesho

😲🤣🤣🤣...Sorry for your loss with Guarana.. I'm in love with it.😍

# I would love to be a resident..I think in the future this will happen.

# I may be closer to the investment visa (for now)

# I will have to renew my visitor visa after January.

# No income from dividends, and rentals yet..

@Pablo888

I'm looking forward to this option 😁

@antonioggriffin

Do you mean the Investor Visa or the Golden Visa? Very different scenarios and hugely different in terms of management and costs.

@Pablo888 My wife takes care of Brazilian Taxes and I take care of the IRS, but I did not know this was a rule of thumb. Thanx.

Roddie in Retirement

@antonioggriffin Thanx, I am just the prep guy for the experts who answered most of your questions. One I might stress is to put a spotlight on your status. Everything seems to take a long time, so if you want to extend your visa or be permanent there is no time like the present to get started.

# I will have to renew my visitor visa after January.

In that case pay particular attention to Brazilian Holidays when official offices are closed. Brazil  does not seem to know a holiday that it does not celebrate.

Roddie in Retirement

    You may want to be a bit cautious about owning foreign assets in a foreign corporation.  The US recognizes something called a Passive Foreign Investment Company:
https://www.investopedia.com/terms/p/pfic.asp-@BRBC

Interesting tid-bit but there is a US Supreme court case Moore vs US (https://www.supremecourt.gov/DocketPDF/ … %20USA.pdf) that will decide whether unrealized gains in a Foreign corporation can be taxed.

Something to watch for if anyone has any foreign (to the US) income stream.

    You may want to be a bit cautious about owning foreign assets in a foreign corporation.  The US recognizes something called a Passive Foreign Investment Company:
https://www.investopedia.com/terms/p/pfic.asp
As far as wealth transfer goes, the rules are quite different in Brazil.  Without any documentation in place your assets goes into Inventario, which is probate. What happens from there is the state splits your assets amongst what it  deems your necessary heirs.  I wont do it justice without knowing more of your family circumstances, but there's a good article here:
https://www.lawyerinbrazil.com/articles-2/what-is-the-brazilian-probate-law-procedure/

One step beyond that is to create a Will.  That can be used to direct 50% of your assets to beneficiaries you select, as opposed to you necessary heirs. The necessary heirs then get to share in the other 50% according to how probate court splits it up.

If you want more control there are more complex strategies.  One is to gift property while living to those whom you want to have it.  There are tax ramifications for doing so, however you can put in place a contract called something to the effect of Frutos e Juros, which is fruits and interest.  Basically it would spell out that you have all rights to use of the property and interest while living. For instance if you had a rental property you could gift it to whomever you decide while living, but that contract would state you get to use the property and retain all rental income while living.  The downside is trying to sell the asset if you want out.. because you don't own it anymore. Upon death there's no probate because your beneficiary already owns it.

Finally you can make a corporation in Brazil and transfer you assets into the corporation.  There are tax ramifications of this as well.  Once in place you can put in the articles of incorporation that you control everything while alive.  You then give out a portion of shares to beneficiaries, and when you pass, they already own the correct portion of your assets as you wanted them distributed. As a US citizen you need to take caution here because it could be considered a PFIC, with significant US tax consequences.

Obviously you need a qualified Brazilian estate/family law attorney to evaluate the pros and cons of all these approaches, and help you through whatever you decide.
   

    -@BRBC

Assuming that all assets outside Brazil are already in good shape according to applicable laws (wills, estate planning, etc.), is it the better approach here to keep things separate based on asset location? 

Although there are different laws applicable on income, transfer are defined by the laws of the land.  Is the ask of the local lawyers to define the legal boundaries only?