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Residence and domicile
How is residence/domicile determined for tax liability purposes in your jurisdiction?
To be considered an individual resident in Brazil, a foreigner living in Brazil must:
- hold a permanent visa;
- hold a temporary visa on the date of arrival in Brazil, and:
- work under a labour agreement; or
- reside in Brazil for more than 183 days (not necessarily consecutive) in any given 12-month period; or
- obtain a permanent visa or labour agreement before the 184th day of residence in Brazil, within a 12-month period.
A Brazilian citizen who was a non-resident, but who has returned to the country with evidence of definitive intention to stay from the date of arrival, will be considered a resident of Brazil.
A Brazilian resident living abroad who has not filed the proper communication of change of residence with the Department of Federal Revenue of Brazil within six months of moving will be considered a resident of Brazil.
Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
All Brazilian taxpayers must file an annual tax return form declaring all income and gains received in the previous tax year, including:
- commissions; and
- other kinds of remuneration.
The taxable income is broad and includes everything that is directly or indirectly connected with the work or assignment remuneration package (eg, salaries, 13th-month salaries, bonuses, premiums, tips and other gratuities and allowances of any kind). Only a few deductions are admitted, some of which are legally limited.
After considering income, taxes withheld and authorised deductions of expenses, taxpayers verify the actual annual income tax and pay or request reimbursement of the difference from the tax already paid during the previous year.
The rates and deductions are progressive and follow a table that changes according to inflation:
R1,903.99 to R2,826.65
R2,826.66 to R3,751.05
R3,751.06 to R4,664.68
There are exceptions to the progressive income tax rates, including:
- capital gains;
- interest and revenue derived from financial instruments; and
- income derived from the stock market.
There are a few tax exemptions, including:
- equipment, clothing, board or transport that is provided free of charge by the employer, or the difference between the amount charged for these items and the market value;
- reimbursements of relocation costs incurred when moving to a different location at the request of the employer;
- allowances to cover expenses when working outside the location in which the work is normally performed;
- indemnities in general, including indemnities for work-related accidents;
- contributions made by the employer to private social security programmes on behalf of employees;
- dividends received from a Brazilian entity; and
- increases of corporate capital in kind.
Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
Capital gains are taxed at a progressive rate of 15% to 22.5%, depending on the total value of the gain. This applies to assets and rights located both in Brazil and abroad.
There are some exemptions (considered on a monthly basis), depending on the asset or right being sold, where the sale price is below certain thresholds.
Earnings that are received by non-residents from real estate rentals located in Brazil are subject to income tax withheld at source at a flat rate of 15%.
For capital gains earned originally in reais, the variation of the exchange rate from the moment of acquisition to the moment of sale will be considered in the calculation of the tax.
In case of capital gains earned originally in foreign currency, the variation of exchange rates will not be considered.
Inheritance and lifetime gifts
Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
Inheritance and donations (ie, gifts) are subject to a state tax – the causa mortis transfer of real estate property tax and donation of any type of property or rights (ITCMD) – with rates that vary between states from 4% to 8%. The tax basis is the market value of the good or right.
The tax must be declared, calculated and payed by the heir or recipient and is due in the following events:
- at the opening of the succession; and
- at the act or contract of donation.
Some states have exemptions based on the donation value. Sao Paulo, for instance, exempts the ITCMD for donations with values of up to R64,250 or real estate donations with values of up to R128,500. Other states have different exemption limits or no exemptions in some cases.
What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?
Except for donations, real estate transactions are subject to property transfer tax (ITBI). ITBI is charged by the city in which the property is located, with rates varying from city to city (generally 2%). The calculation basis is the value of the real estate transferred.
Non-real estate assets
Do any taxes apply to the acquisition and disposal of other assets apart from real estate?
There is no tax on private transactions of assets, apart from real estate.
Other applicable tax regimes
Are any other direct or indirect tax regimes relevant to individuals?
No. There is only the general tax regime applicable to all individuals.
Are there any special tax planning considerations for individuals with a link to your jurisdiction?
Private clients in Brazil may set up either domestic or international vehicles such as companies or investment funds for wealth structuring. Holding companies are the most common vehicle used domestically for property planning.
Another option for investments is the exclusive investment fund, which is another domestic structure that private clients often choose as an alternative means of preserving the family heritage.
Individuals are usually taxed only in the event of receiving amounts from the fund, whether in the form of income or capital gains from the sale of quotas. However, when a fund is invested in fixed assets, individuals are taxed on a deemed profit every six months, without any deduction (ie, losses are not deducted from future tax payments).
Even in the wealthiest families in Brazil, it is common for individuals to invest in a specific fund called a free life benefit generating plan (VGBL) as a practical solution in succession issues, since the proceeds from a VGBL are transferred to the appointed beneficiary without any probation or application of succession rules (eg, forced inheritance). VGBLs are offered only by licensed financial institutions.
It is also common for private clients to create funds and companies abroad as vehicles for investing in other jurisdictions, since this kind of structure avoids Brazilian income tax so long as the assets remain outside the Brazilian border.
In addition, those vehicles provide ways to access more sophisticated structures that are not provided by Brazilian law.
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