Tax Residency: Understand Your Obligations When Investing in Brazil and Abroad

Viver no mundo, pagar impostos no lugar certo! Saiba onde você é residente fiscal e evite surpresas.

In today's globalized world, it is common for individuals to own investments and properties both in Brazil and abroad. However, this diversity of assets and personal life brings up an essential and necessary question to think about: where should I pay my taxes?

The answer lies in understanding tax residency, which determines in which country you must fulfill your tax obligations.

What is tax residency?

Tax residence is the address that an individual or company has for tax purposes. It is the link with a country (federal level) that will determine where they must declare their income and pay taxes. In Brazil, the Internal Revenue Service establishes criteria for identifying who is considered a tax resident, however, there can often be disputes surrounding this definition, which can lead to double taxation.

Who is considered a tax resident in Brazil?

According to the Receita Federal, you are considered a tax resident in Brazil if:

• You live in the country permanently: If you live in Brazil with the intention of staying indefinitely, you are considered a tax resident.

• You are absent from Brazil for less than 12 consecutive months: Even if you travel or live abroad temporarily, if the period is less than 12 months, you remain a Brazilian tax resident.

• You enter Brazil on a permanent visa: From the date of arrival, you are considered a tax resident.

• You enter with a temporary visa and stay for more than 183 days in a 12-month period: In this case, you also become a tax resident.

If you plan to live outside Brazil for more than 12 months or permanently, you need to formalize your departure with a Declaration of Final Departure from the Country. This ends your status as a Brazilian tax resident from the date of departure or official communication to the Receita Federal.

Implications for Investments and Properties in Brazil and Abroad

• Tax Residents in Brazil with Assets Abroad: If you are a tax resident in Brazil and own investments or real estate abroad, you must declare these assets and income in your Annual Income Tax Return. Brazil taxes the global income of its residents. In addition, if the value of assets abroad exceeds certain limits, it is necessary to file a Declaration of Brazilian Capital Abroad (DCBE) with the Central Bank.

• Non-Residents with Assets in Brazil: If you live abroad and have investments or real estate in Brazil, the income from these assets is subject to taxation at source. In this situation, it is not compulsory to file an annual income tax return in Brazil, but the taxes due must be paid in accordance with current legislation.

For example, imagine that João, a Brazilian, was offered a job abroad and decided to move with his family. Before moving, he had a rented apartment in Brazil and investments in shares on the Brazilian stock exchange. Before the move: João, as a tax resident in Brazil, declared all his income, including the rent from the apartment and gains from shares, on his annual income tax return. After the move: When he decided to live abroad for more than 12 months, João chose to formalize his departure from Brazil through the Declaration of Definitive Departure from the Country. As a result, he ceased to be a tax resident in Brazil. His income from renting and investing in shares is now taxed exclusively at source, and João is no longer obliged to file an annual income tax return in Brazil.

International Agreements (Double Taxation and Tax Reciprocity) and Double Taxation

To avoid double taxation, where the same income is taxed in two countries, Brazil has Double Taxation Avoidance Agreements (DTAAs) with several nations, as well as Reciprocity Agreements for exchanging tax information.

These agreements establish rules on which country has the right to tax certain income and, in some cases, allow for the offsetting (crediting) of taxes paid abroad. In the absence of an agreement, taxation can occur both in the country where the income originates and in Brazil.

Brazil currently has double taxation agreements with 32 countries: South America: Argentina, Chile, Ecuador, Peru, Uruguay and Venezuela; North America: Canada and Mexico; Europe: Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Italy, Luxembourg, the Netherlands, Portugal, Russia, Slovakia, Spain, Sweden and Switzerland; Asia and the Middle East: China, South Korea, the United Arab Emirates, the Philippines, India, Israel, Japan, Singapore and Turkey; Africa: South Africa; and the Caribbean: Trinidad and Tobago.

Procedures for Moving Abroad

If you plan to live abroad permanently or for a period of more than 12 months, it is advisable to:

1. Communicate the Departure: Send the Communication of Definitive Departure from the Country to the Internal Revenue Service by the last day of February of the year following the departure.

2. Declare Departure: Submit the Declaration of Final Departure from the Country by the last day of April of the year following departure.

These procedures end your status as a tax resident in Brazil, and you become taxed as a non-resident.

Conclusion

Understanding your tax residency situation is key to correctly fulfilling your tax obligations and avoiding future problems such as double taxation. If you have investments or property in different countries, it is advisable to seek advice from a professional specializing in international tax law to help you with tax planning and compliance.