By Jose Santiago
We contine with part 3 of Jose’s article helping foreigners who live in Brazil understand how the tax system works. To read the previous parts click the relevant link at the bottom of the article.
Q. Do I need to file a Brazilian tax return?
A. All tax residents who earn in excess of a fixed amount per year must file a Brazilian Tax Return.
All tax residents holding assets and investments (including shares) located abroad must also present a specific declaration (the so called Capitais Brasileiros no Exterior – CBE”) to the Brazilian Central Bank disclosing such assets and investments. Failures or omissions will be subject to heavy penalties. The due date for the declaration is the last working day in May of the year following the applicable tax year.
Q. When does it need to be filed?
A. Taxpayers must file income tax returns by the last working day of April of the year following the applicable tax year.
Q. What is the procedure for paying tax?
A. Brazil has a system of monthly withholding from income. Payments must also be made by the taxpayer in respect of income not subject to withholding.
In general, individuals with income that is not subject to withholding (in the case of expatriates, this includes offshore compensation, interest, dividends, rents, etc., but not capital gains) are subject to a monthly payment of income tax (carn leão) calculated at the monthly rates. The advance payment must be paid on or before the last working day of the month following the month when the income was received. Payments are made via voucher at any commercial bank. The advance payment is credited against the liability of the annual income tax.
Withholding and carn leão are both calculated using the monthly tax rates on monthly taxable income (gross less allowances for dependents, social security, etc.). An individual may compute the tax on income subject to and not subject to withholding reduced by the tax actually withheld to arrive at additional total tax due. This computation method eliminates the duplication of the lower rates. If this method were not used, the underpayment would be due with the annual return.
When the annual return is filed, the liability is determined, and the balance due can be paid in one lump sum or divided into six monthly payments. When the installment method is chosen, the first payment is without interest and the remaining five payments are subject to interest at the monthly average rate of federal treasury bonds (SELIC).
Tax – Income from employment
Q. Will non-cash compensation be taxable (e.g. housing)?
A. Housing allowances or company-provided housing is taxable to an employee at graduated rates.
Other benefits received by an employee from an employer, such as moving expenses, home leave, and language lessons and use of a car may not be fully taxable if structured in certain ways.
Q. I will be working in different countries while living in Brazil. Will all of my employment income be taxable in Brazil?
A. Residents of Brazil are subject to Brazilian income tax on worldwide income regardless of the source of that income.
Non-residents are subject to income tax on Brazilian-source income only. It should be noted that in most cases, the source of payment is used to determine the source of income. Therefore payments made in Brazil will be considered to have a Brazilian source and payments made outside Brazil to have a foreign source, and so non-residents should arrange for payments of income to be structured efficiently.
The fourth and final part next week…
Jose C. Santiago
Multinvest / Elite International
Licensed Attorney – Brazil
Licensed Real Estate Agent – USA
Phones: (55-11) 9348-5729 – São Paulo, Brazil
(800) 983-7060 – Miami, USA
Previous articles by Jose:
Tax Information for Foreigners in Brazil Part 2
Tax Information for Foreigners in Brazil Part 1
8 Reasons to Invest in Brazil’s Real Estate
The Brazilian Resident Investor Program for Foreigners
Brazil: Annual Required Procedures to Keep Your CPF Number
Legal Aspects of Acquiring Real Estate in Brazil
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