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We previously touched on Brazil here
Tax filing in Brazil for foreign citizens is governed by specific regulations that must be strictly adhered to. The Brazilian Federal Revenue (Receita Federal) is responsible for tax administration, and it classifies individuals into either tax residents or non-residents, which determines their tax liabilities.
For tax residents, defined as individuals who reside in Brazil as legal residents or temporary for 183 days or more within a 12-month period, the obligation is to pay taxes on worldwide income. Non-residents, on the other hand, are only taxed on income that originates from Brazilian sources.
The filing process involves obtaining a CPF (Cadastro de Pessoas Físicas), which is a mandatory tax identification number. The annual income tax return, typically due by April 30th of the following year, must include all sources of income. Brazil’s tax rates are progressive, ranging from 0% to 27.5%.
Brazil has double taxation treaties with several countries, which can affect how foreign citizens are taxed on their income. It’s important to be aware that non-compliance with the tax regulations can lead to penalties, including fines and interest charges.
Given the complexity of the tax system, foreign citizens are advised to consult with tax professionals for guidance. This ensures compliance with the current tax laws and regulations in Brazil.
Here’s the answer to some recently posed questions
Double taxation
Foreign tax relief – Tax credits are available with respect to income tax paid to countries with which Brazil has a ratified tax treaty or to countries that would render reciprocal treatment in relation to income tax paid to the Brazilian government, provided that some requirements are met.
Tax treaties – Brazil signed tax treaties to avoid double taxation with the following countries: Argentina, Austria, Belgium, Canada, Chile, China, Colombia, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Paraguay , Peru, Philippines, Portugal, Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Trinidad & Tobago, Turkey, Ukraine, United Arab Emirates, Uruguay, and Venezuela.
Treaties pending ratification (not yet in force) – In the case of the United States, United Kingdom, and Germany, the Brazilian authorities have already officially recognized the reciprocity of tax treatment, which permits the offsetting of the tax paid in those countries against the tax due in Brazil, on the same earnings.
- Limitation of Credit: The credit that can be claimed in Brazil is generally limited to the amount of Brazilian tax payable on that foreign income. In other words, the tax credit cannot exceed the amount that you would have paid on that income in Brazil.
- Specific Income Types: The treaty outlines specific types of income that qualify for this tax credit. It’s important to understand which types of income are eligible.
- Documentation and Reporting: Adequate documentation and proper reporting are necessary to claim this tax credit. Taxpayers must provide evidence of the foreign tax paid and report it accurately on their Brazilian tax returns.
Reporting requirements regarding global assets, and what does Brazil monitor? How is this reported and kept updated?
If you reside in Brazil as of the end of 2024 – or if you own a Brazilian company – it’s essential to be aware of the Central Bank’s annual reporting requirements for foreign-held assets. The CBE declaration (Capitais Brasileiros no Exterior) is mandatory for individuals and legal entities with at least US$1,000,000 in assets outside Brazil on December 31. The deadline for filing is April 5, 2025.
The CBE declaration applies to a wide range of foreign assets, including bank accounts, real estate, trusts, and financial investments in bonds, funds, and stocks.
Filing the declaration is straightforward and can be completed entirely online through the Central Bank’s website. The system requires you to provide your CPF (for individuals) or CNPJ (for legal entities), along with detailed information about each foreign asset, such as its nature, value, and location.
If your assets aren’t in US dollars, you must list them in their original currency. However, to determine whether you meet the reporting threshold, you should first convert the total value into USD.
Failure to file the CBE declaration – or submitting it late or with errors – can result in substantial fines, reaching up to BRL$250,000 (approximately US$43,000) for providing false information. The Central Bank allows for revised submissions if amendments are needed after the initial filing.
When you establish residency in Brazil or operate as a Brazilian entity, you take on the responsibility of complying with local regulations. This includes the obligation to declare foreign assets.
Many of our clients are aware of the need to declare assets abroad to the Federal Revenue Service (RFB) through the annual tax return (DAA, the “normal” income tax return). Few, however, are accustomed to the obligation to report the same assets abroad to the Central Bank through the Brazilian Capital Abroad Declaration (CBE).
The purpose of this text on how to declare assets abroad is to describe which assets must be declared and under what conditions an individual may be obliged to file the two declarations. In particular, it is important to inform you of the administrative fines applicable for failure to comply with the obligations to file the DAA and CBE. We have already touched on this subject when dealing with the consequences of not delivering the Declaration of Final Departure from the Country But here we will focus more on what must be declared.
Obligation to declare assets abroad in the DAA
The Annual Adjustment Declaration (DAA) is a declaration that aims to determine the taxpayer’s increase in assets during an annual period, on which the income tax due should be calculated. This declaration must be submitted in March and April of each year by individuals who are tax residents in Brazil and meet specific mandatory requirements.
With regard to their assets, the individual required to file the DAA must inform the following items in the assets and rights section of the declaration:
Thus, for example, if the balance of a bank account is equal to or less than R$ 140, the taxpayer will not be obliged to report it, even if they are obliged to file an annual tax return.
When declaring assets abroad, it is necessary to inform the values on December 31 of the calendar year of the declaration and on December 31 of the immediately preceding calendar year. Accordingly, for the declaration to be filed in 2020, the asset position on December 31, 2019 (calendar year of the declaration) and December 31, 2018 (previous year) must be reported.
The above rules apply both to declaring assets abroad and to declaring assets located in Brazil.
For assets abroad denominated in foreign currency, the amounts to be reported on the assets and rights sheet must be converted into Brazilian reais using specific exchange rates:
As you can see, the legislation has provided for very different ways of calculating the value in reais of the assets and rights reported when declaring assets abroad in the DAA.
The most common mistake we find is to treat all the assets in the declaration as if they were non-interest-bearing deposits, i.e. to convert the value into foreign currency at the exchange rate on December 31st of the year of the declaration. In years of very significant exchange rate fluctuations, this can mean recording an increase in assets in the DAA that has no origin in the taxpayer’s income.
Missing the deadline for submitting the DAA will result in a fine of (i). R$ 165.74; or, if higher, (ii). of 1% of the amount of tax due per month of delay, up to a limit of 20%. The amount of tax due is that reported on the return filed late. The aforementioned fine does not exclude the taxpayer’s liability for the payment of any tax and legal increases for the delay.
It’s worth mentioning that this fine only applies if you don’t file a return within the legal deadline. If a declaration was filed on time, but had to be rectified, the fine does not apply.
Obligation to declare assets abroad at the CBE
The CBE is a declaration created for statistical purposes, with the aim of allowing the Central Bank to estimate the need to maintain foreign currency reserves to honor external commitments. Both the DAA and the CBE must be filed by tax residents in Brazil, but there are some important differences that make filling in the CBE simpler:
- Who is obliged to deliver: the CBE must be submitted by individuals and companies, while the DAA is submitted only by individuals (companies are subject to submitting their own declarations to the tax authorities);
- What should be informed: Unlike the DAA, only assets and rights located abroad must be reported on the CBE, and debts and encumbrances in rem must not be reported;
- Currency to be reported: In the CBE, assets are reported in their original currency, without converting the values to reais;
- Equity position: Only the declarant’s asset position on the base date is of interest, not the gains and losses on assets that occurred during the period. Thus, if the declarant had a bank account and it was closed during the year, so that on December 31st of the year of the declaration there was no balance left, the item should not be reported. There is no comparison with the assets situation on December 31st of the previous year.
Every year, the Central Bank publishes the criteria used to identify which assets should be reported when declaring assets abroad and how to determine their value, through the Declarant’s Manual (the most recent one, referring to the 2021 annual CBE, to be submitted in 2022, is available at this link). In general, assets should be reported at their market value, unless otherwise stated.
Submission of the CBE is mandatory if the total value of the assets located abroad in the name of the tax resident in Brazil is equal to or greater than US$ 1,000,000 (annual declaration) or US$ 100,000,000 (quarterly declaration) or its equivalent in other currencies.
The deadlines for submitting the CBE are as follows:
The above deadlines are general, and may be extended to the first following working day if they coincide with a day on which the Central Bank has no working hours or if working hours are closed before 6pm. Each year, the Central Bank publishes the exact dates depending on whether or not these events occur.
Failure to comply with the delivery deadline and other obligations relating to the completion of the CBE is subject to the following administrative penalties:
The first three fines above may be increased by 50% (fifty percent) in cases where the declarant fails to make, correct or supplement the declaration when requested by the Central Bank. The documentation supporting the information provided through the CBE must be kept by those responsible for providing the information for a period of 5 years, counting from the base date of the declaration.
The main error we find is that clients are unaware of the existence of the CBE and the delivery deadlines, which exposes them to the aforementioned fines for missing or late deliveries. There is also the possibility of errors in filling in the values. In this case, unlike the DIRPF, if a CBE is submitted on time and rectified after the deadline, the 1% fine will be levied on any positive difference between the two CBEs submitted.
Declaring assets abroad: conclusions
Based on our experience, we can say that the main mistakes made by taxpayers who keep assets abroad are the following:
- Failing to declare assets abroad in the DAA: Most people simply assume that they have to declare in Brazil what they have in Brazil and abroad what they have abroad. This is not true;
- Declare assets abroad in the DAA as if they were non-interest-bearing deposits: is the easiest, but incorrect, solution. Each type of asset or right must be declared in a different way, usually according to the acquisition cost, without updating to market value. This is a mistake we see most often in the work of accountants who are not familiar with the subject;
- Forgetting that the CBE exists: The CBE must be filed with the Central Bank, but because it is not an income tax return, few people know that it exists. Not only does it exist, but the fines for late filing are high and, at the very least, failure to file this declaration is a crime. can have criminal consequences.
What are Brazil tax obligations on U.S social security income?
US social security distributions are subject to taxation in Brazil.
Does the US Have a Totalization Agreement with Brazil?
Yes, the United States and Brazil have a Totalization Agreement. The purpose of this agreement is to help ensure that workers who are employed in both countries are not subject to double taxation on their Social Security contributions.
Under the agreement, workers who are employed in one country but are residents of another are only required to pay Social Security taxes to one country at a time. This can help eliminate the burden of paying taxes to both countries and can provide some relief to American expats living in Brazil.
In addition, the agreement can also help ensure that workers are eligible for Social Security benefits in both countries. This can be particularly important for expats who may not have the opportunity to accumulate enough credits to qualify for Social Security benefits in the United States.
Brazil maintains the following totalisation agreements:
- Ibero-Americano Multilateral Agreement: Argentina, Brazil, Bolivia, Chile, Ecuador, El Salvador, Spain, Paraguay, and Uruguay.
- Mercosul (Southern Common Market Agreement): Argentina, Paraguay, Uruguay, and Brazil.
- Belgium
- Canada
- Cape Verde
- Chile
- France
- Germany
- Greece
- Italy
- Japan
- Luxembourg
- Portugal
- Quebec
- South Korea
- Spain
- Switzerland
- United States
The following totalisation agreements are in progress (not yet in force):
- Bulgaria
- China
- India
- Israel
- Mozambique
- Portuguese Speaking Countries Multilateral Agreement: Angola, Cabo Verde, Guinea Bissau, Mozambique, Portugal, Sao Tome and Principe, and East Timor.
How would withdrawals from traditional IRAs be treated by Brazilian tax?
Brazil tax law, is ambiguous on the local tax treatment of foreign tax-advantaged retirement accounts, when not in withdrawal mode, including whether tax residents must declare them on their Asset List on their local annual tax return.
As a tax resident, your foreign pension is subject to Brazilian tax.
The implementation of the changes introduced by the ‘New Migration Law’, specifically with regard to the procedures for issuing visas and their impacts on the rules of individual tax residence of foreigners in Brazil, was done through the issuing of regulation by local authorities (Federal Decree 9,199/2017).
The visa is individual and the applicant who intends to enter or remain in the national territory may be granted a permanent visa or a visa as: visitor (valid for one year); temporary (valid for up to one year); diplomatic, official or courtesy (valid for up to three years).
The following individuals are considered residents for Brazilian income tax purposes:
- Brazilian citizens living in Brazil.
- Brazilian residents living abroad for the first 12 months subsequent to their departure (in cases where no exit process is filed).
- Naturalised foreign nationals living in Brazil.
- Foreign national holders of permanent visas and holders of temporary work visas under an employment contract with a Brazilian entity, as of the date of entry to Brazil with such visas.
- Individuals who enter into Brazil under a temporary visa to work as a doctor under the program ‘Mais Médicos‘ on the date of arrival.
- Foreign nationals holding temporary visas without an employment contract with a Brazilian entity, after completing 183 days of actual physical presence in Brazil (consecutive or not) within a 12-months period.
- Nationals from Mercosul States (Argentina, Paraguay, and Uruguay), as well as from Bolivia, Chile, Colombia, and Peru, who claim temporary residence on the date the work relationship is established or on the date permanent residence is achieved.
The following individuals are considered non-residents for Brazilian income tax purposes:
- Brazilians living abroad, as of the date of departure (if the exit process has been filed).
- Brazilians living abroad, after 12 months of departure (if the exit process has not been filed).
- Foreign nationals holding temporary visas without an employment contract with a Brazilian entity, during their first 183 days of actual physical presence in Brazil (consecutive or not) within a 12-months period.
One specific question I would have is what sort of US withholding should I plan on when I start drawing SS income, considering what I also expect to draw annually from my IRAs.
Social Security benefits include monthly retirement, survivor and disability benefits. They don’t include supplemental security income payments, which aren’t taxable.
The portion of benefits that are taxable depends on the taxpayer’s income and filing status.
To determine if their benefits are taxable, taxpayers should take half of the Social Security money they collected during the year and add it to their other income. Other income includes pensions, wages, interest, dividends and capital gains.
- If they are single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable.
- If they are married filing jointly, they should take half of their Social Security, plus half of their spouse’s Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.
Fifty percent of a taxpayer’s benefits may be taxable if they are:
- Filing single, head of household or qualifying widow or widower with $25,000 to $34,000 income.
- Married filing separately and lived apart from their spouse for all of 2020 with $25,000 to $34,000 income.
- Married filing jointly with $32,000 to $44,000 income.
Up to 85% of a taxpayer’s benefits may be taxable if they are:
- Filing single, head of household or qualifying widow or widower with more than $34,000 income.
- Married filing jointly with more than $44,000 income.
- Married filing separately and lived apart from their spouse for all of 2021 with more than $34,000 income.
- Married filing separately and lived with their spouse at any time during 2021.
