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How Do Foreign Investors Need To Ensure Tax Compliance In Brazil?

tax compliance

Foreigners who plan to set up a business or live in Brazil must be aware of Brazilian tax and fiscal terms. The amount of taxes really can surprise investors. However, the process becomes simpler when future residents have the guidance of an accounting in Brazil. The tax accountant in Brazil is responsible for reporting on all tax aspects, ensuring greater peace of mind to foreigners. With the advice of an accounting firm in Brazil, foreign investors take better advantage of business opportunities, adhere to tax compliance and avoid errors such as double taxation, for example. 

By the way, do you know what tax compliance is and how to be aligned with it? Let’s explain more about this topic here on the blog. Check it out! 

What is tax compliance?

To begin, tax compliance is, in short, the full compliance with the main and ancillary obligations to which the individual or legal entity is subject. 

Compliance with these obligations must be in accordance with legal norms and requirements, calculations, file standards (the layouts), among other factors. 

The standardization of calculations and document delivery processes, in turn, ensures greater ease of checking the documentation by tax agencies. 

However, for the taxpayer (especially in the case of small businesses), keeping the company in compliance is very costly. This generates what we call “invisible costs.” 

Here are examples of “invisible costs”:

  1. In the Tax Return: It is essential that a tax accountant in Brazil checks the statements and information, cross-referencing all the data in order to avoid inconsistencies and questions from the supervisory bodies. In turn, this action rules out the possibility of tax assessments for incomplete, incorrect or omitted data.
  2. When correcting the tax return: when generating and transmitting inconsistent information, companies can be notified by supervisory bodies, which establish a deadline for correction the information (rectifications). In this case, pecuniary penalties often occur.
  3. Error Source Identification: Detecting the error source is critical in understanding the flow of information, your suppliers, and your customers. But this process takes time and can burden the entire process, including due to the greater workload of the tax accountant. 

tax compliance

Income Tax Return for Foreigners in Brazil 

Tax and fiscal compliance naturally involves the need to declare the income tax return. Therefore, all people residing in Brazil (valid for foreigners as well) must present an Income Tax Return. 

Individuals who became resident in Brazil from 2020 are obliged to submit the income tax return in 2021, referring to the previous year.

Income Tax Calculation

Income earned abroad may be taxed in Brazil from the date on which the foreigner takes up residence in Brazil. Thus, income is taxed according to the progressive monthly income tax table, which varies from 0% to 27.5%. 

Then, it is worth noting that the percentage varies, depending on the income amount. Likewise, income earned through paying sources in Brazil will always be subject to taxation in Brazil.

Capital Gain Tax Calculation

Capital gain by foreigners, on assets in Brazil or abroad, is also subject to Brazilian taxation. Namely: the capital gain derives from the difference between the sale value and acquisition cost.

In addition, income from financial investments abroad is considered taxable equally.  

Foreigner in Brazil: what are the obligations to move out of Brazil?

Then, to leave Brazil in a situation of tax compliance, the foreigner must present two documents, which are required by the Brazilian Federal Revenue Service:

  • Notice of Definitive Departure from Brazil: They give a notice of the date of departure, whether temporary or permanent.
  • Declaration of Definitive Departure from Brazil aimed at the taxation of income obtained between January 1 and the date of departure.

Was this article relevant to answering your questions? Should you still need more information, please contact the Europartner team of experts. 

We are an accounting firm in Brazil that assists foreign investors in all stages of opening a business and establishing residence in Brazil. 

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