Brazil – Tax & Legal 2010/2011
Snapshot
William Heuseler
March 2011
Brazil Residence Concept
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Concept of Residence
Individual

Who comes to Brazil on a long term basis;

Holder of a permanent visa as of arrival date or granting of such visa;

Holder of a temporary visa who:
•
Arrives in Brazil to work under an employment contract as of arrival
date or signature of the contract;
•
Stays in Brazil for more than 183 days, consecutive or not, over a
twelve-month period counting from the date of any arrival, as of the
day following the completion of the 183 days.

New Regulation – Law 12.249/10 – art. 27
•
Distintiction of “Vital Center” or 183 days rule
3
Brazil Tax System – Individuals
4
Income Tax
Individual – Worldwide taxation

Annual income tax return;

Investments abroad:
•
Capital gains (investments directly detained by individual) – Fixed rate
(15%);
•
Income – flat tax rates (progressive rates from Zero up to 27,5%
• Zero, 7.5%, 15%, 22.5% and 27.5%

Investments on Domestic financial and capital markets – Exclusive
Taxation (22,5% to 15%)
New Regulation

6.38% IOF on Credit Card expenses done abroad
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Taxation – Triggering event

Individuals:
•

Cash Basis – upon availability.
Legal entities:
•
General rule- accrual basis: accounting of revenues upon unconditional
right to such revenues (annually);
•
Possibility to adopt “Cash Basis” system – upon availability (Presumed
Profits System).
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Inbound Investments – General Concepts
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Inbound Investment

Law 4131 – Direct Investment
•
Foreign investment must be registered with the Central Bank of Brazil
– BACEN. That entitles the foreign investor to repatriate capital and
remit dividend payments.

Resolution No. 2.689 – Financial Market Access
•
Special tax regime for non-resident investors in the Brazilian financial
and/or capital market

IOF New Rules

6% IOF upon FX transaction (inbound) for fixed interest market

2% upon FX transaction (inbound) for stock market investments
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Investing directly in Brazil
“2689 Account”

Resolution 2.689 was issued by the National Monetary Council in January 2000

It allows nonresidents to invest in the Brazilian capital and financial markets

Establishes that foreign investors must have a local custodian, legal and a tax
representative in Brazil and regulates the conditions for operating the account
in Brazil

Assets are always registered under the final investor’s name

A Financial Institutional will provide the full service:
Tax Representative
• Calculation and collection of capital gains in equities
transactions
Legal Representatives
Responsibilities
• Be the representative before the CVM and the BCB
by presenting documents and responding to
inquiries before regulators
• Sign the FX agreement on behalf of the client
Custodian
• Segregate the assets into final beneficiaries’
accounts
• Control the positions (reconciliation), and financial
settlement
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Investing directly in Brazil
“2689 Account”
Investments Allowed:

Assets traded in the stock exchange (BOVESPA and BM&F): Stocks and
Derivatives Markets
•
Equities
•
Commodities (gold, agribusiness)
•
Forwards (US Dollar, Gold)
•
Futures (Equities, DI, Ibovespa Index, US Dollar/ EURO, Gold, IPC-A/IGP-M)
•
Options (DI, Ibovespa Index)
•
Indexes (Bovespa Index, Brazil 50 Index – IbrX 50, Brazil Index - IbrX)
•
Assets traded in the OTC market, but registered in depository systems
recognized by the CVM and BCB, such as CETIP and SELIC (currently Itaú
works only with SELIC)

Investment funds that accept 2.689 investors dully registered at the CVM and
with the quotas registered at CETIP
•
Funds offered by Itaú Asset Management
•
Third Party Funds
*CVM (Brazilian Securities Exchange Commission) **Special System for Liquidation and Custody (SELIC); Central Office for Custody and
Financial Liquidation of Private Bonds (CETIP)
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Investing directly in Brazil
“2689 Account” - Taxation
http://bestbrazil.org.br/pages/publications/091117_foreign_investors_guide_2009.pdf
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Outbound Investments
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Individual Investing Abroad
Fund
Personal
Account
Personal
Account
PIC
Abroad
Brazil
Taxation
• Capital gain tax on
withdraws from the
investment – 15% on
the gain
• F/X variation –
periodical impact
(when income and
interests are
deposited on the
individual’s
account)
Taxation
• 15% over capital gain;
and
• 0% to 27,5% over
dividends, when they
are distributed to the
individual
• F/X variation –
periodical impact
(when income and
interests are
deposited on the
individual’s account)
Taxation
• Capital gain tax on
withdraws from the
investment – 15% on
the gain
• F/X variation –
periodical impact
(when income and
interests are
deposited on the
individual’s
account)
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Declaration if Investment Abroad
Central Bank
Individuals and Legal entities

Legal scenario:
•

Obligation to declare:
•

•
Assets in rights held abroad amounting US$ 100,000.00 or more (on December
31st).
Market Value
Penalties:
•

Residents in Brazil (individuals or legal entities).
Scope:
•

MP No. 2224/01 + Central Bank’s normative ruling – annual statement.
Lack of declaration, providing false, incorrect or incomplete information, or
failing to meet deadline – fine up to R$250,000.00.
Trusts:
•
•
No specific requirements in the legislation nor in the regulations regarding the
declaration of trusts.
Central Bank’s Q&A.
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Investments Abroad
Law 7.492/86
White Collar Law: crimes against the national financial system



Art. 22 to perform non-authorized foreign exchange transaction, with the intent
of transferring money out of the country:
Penalty – Imprisonment - 2 to 6 years + fines
§ 1. the same penalty will be applied to those who, with any objective,
promotes, without legal authorization, the exit of currency or values out of the
country, or keep offshore deposits which are not declared to the competent
authorities (this crime does not lapse/ expire because it is committed every
year that the money is not declared)
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Estate Planning – International
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Trust / Foundation
Concept

Brazilian law does not contemplate trusts/foundations

No domestic rules on the taxation of trusts/foundations and their
settlors/founders and beneficiaries

Introductory Law to the Civil Code - Article 7 – the law where the party is
domiciled shall govern its legal capacity

Trust - it is likely that the Brazilian tax authorities would treat it as a nonresident legal entity

Foundation – legal entity
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Trust / Foundation
Main issues

When does occur transfer of assets / Funding
•
Occurs by the actual transfer of possession
•
Some assets require specific registration with proper authorities (e.g. real
estate, interest equity, vehicles)
•
No provision preventing/limiting an offshore trust/foundation to hold assets
in Brazil

Nature of transfer of assets to the trust
•
•
Revocable trust (fiduciary transfer not typified under Brazilian civil law)
•
Taxation on transfer
•
Settlor may keep the basis for the assets in his income tax return
Irrevocable trust or foundation (donation or gift)
•
Taxation on transfer: ITCMD
•
Settlor/Founder does not keep basis for the assets in his income tax
return
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Trust / Foundation
Main issues

Forced heirship rules
•
Limitations to the possibility of constituting trusts – marital regime and
forced heirship

Distribution of assets to the beneficiaries
•
Real estate: subject to ITBI and generally characterize ordinary income
(27.5% income tax)
•
Other types of income (ex. Dividends): characterize ordinary income
•
Donation of real estate: subject to ITCMD (State Level Tax – 0% to 8%)
•
Life insurance proceeds distributed: non-taxable income (Brazilian
legislation)
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Trust/Foundation
Corporate
Settlor
Protector
(if applicable)
Trustee/
Foundation
$
Trust
Beneficiaries
Investment
Advisor
PIC
Investment
Advisor
Board of
Directors
Beneficiaries
Directors
$
20
Local Legislation and New Trends
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International Life Insurance

Complementary Law nº 126/07 establishes several additional restrictions for the
acquisition of international insurance by Brazilian residents

According to Law nº 126/07, Brazilian residents must contract only onshore life
insurances, except in the following situations:
• The specific risk is not covered by any type of insurance available in Brazil
• Insurance was contracted while the individual was not resident in Brazil and is
valid only until the individual is an offshore resident
• 10 quotes rule
• International treaties duly executed by the Brazilian Congress allowing the
specific insurance
• Insurance contracted prior to the enforcement of Law nº 126/07
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Family and Successions
Marriage Property Regime: Mandatory Separation

Current: Marriage regime imposed for individuals older than 60 years

Trend: Possible amendment, since some consider it is a discriminatory rule

Main Bills (in course at the House of Representatives):
•
Bill No. 108/2007 (Federal Representative Solange Amaral):
Mandatory separation - 70 years of age
•
Bill No. 2285/07 (Families Statute, Federal Representative Sérgio
Barradas Carneiro): Suppresses the mandatory regime, free stipulation
by the spouses
Source: Choaib, Paiva & Justo
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Family and Successions
Same Sex Union

Current: Implied partnership rather than family entity. Omission in legislation.
Property acquired through mutual effort (Digest No. 380 of the STF – Federal
Supreme Court) Dependant on healthcare plan. Death allowance (Normative
Ruling INSS No. 25/2000)

Trend: Family entity (stable union). Dignity, Liberty and Isonomy
•
STJ – Superior Court of Justice (2008) juridical possibility of discussing
action on union of people of the same sex
•
Law No. 11340/06 family: intimate affective relation not dependant on
sexual orientation; and
•
Reality of facts: 17.9 million homosexuals in Brazil (ABGLT, 2008). IBGE 2010.
•
Bill No. 1151/95 (Federal Representative Marta Suplicy) in course at the
House of Representatives
•
Civil Partnership: inheritance, dependence before the Tax Authority
Source: Choaib, Paiva & Justo
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Family and Successions
Concubinage

Current: Implied partnership rather than family entity
•
Partition of property acquired through mutual effort (Digest No. 380 – STF)
•
Forbidden: donation to the concubine and appointment as heir or legatee
•
Innovative Decisions grant rights to concubine (minority). Dignity,
Isonomy, Affection and Reasonability
–
Indemnification for house-keeping services (STJ, 2007);
–
Division of the social security pension between widow and concubine (STJ –
2005);
–
Double union – property acquired in the course of the union are distributed
through wife, companion and the deceased (TJRS, 2007).
STF still denies rights to the concubine: impossibility of apportionment of the
social security allowance, since concubinage does not have legal protection (STJ,
2008)
Source: Choaib, Paiva & Justo
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Family and Successions
Paternity
Law No. 12.004, of July 29, 2009, on paternity investigation.
Paternity presumed upon refusal of the supposed father to have his genetic
code tested – DNA test, to be analyzed along with the context of proof.
Source: Choaib, Paiva & Justo
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