U.S. Income Tax Return Preparation and Advice for American Citizen (Expatriates) Living in Brazil
Our Brazil Phone Number: +55 11 3958-7371At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Brazil for over 8 years. Our clients hail from all parts of the country - Rio and Sao Palo, Salvador and Brasilia, Fortaleza and Belo Horizonte.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Brazil and know how to integrate your U.S. taxes into the local income taxes you pay. Any brazilian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Brazil for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Braziliian Tax System for the American Expatriates.
Brazil personal income tax rates are progressive, up to 27.5%.
|Taxable Income (BRL)||Tax Rate %|
|Up to BRL 17,208||Exempt|
|BRL 17,208 - 25,800||7.5%|
|BRL 25,800 - 34,392||15.0%|
|BRL 34,392 - 42,984||22.5%|
|Over BRL 42,984||27.5%|
Basis - Resident individuals are taxed on worldwide income. Nonresidents are taxed only on income from Brazilian sources.
Residence - In addition to citizens, the following are considered tax residents:
naturalized foreigners; foreigners who hold a permanent visa or a temporary visa with a local employment contract, from the date of arrival; and foreigners who hold a temporary visa but no local employment contract, after completing 183 days of residence in Brazil within any 12-month period.
Filing status - There is an option for married individuals to file a joint tax return for the household.
Taxable income - Taxable income includes wages, salaries, bonuses, consulting fees and commissions, premiums, directors' fees, and interest and dividends from foreign sources. It also includes most allowances connected with employment; moving expenses, however, are generally nontaxable.
The frmal profit sharing paid by a Brazilian employer to employees can be exempt only for INSS and severance fund purposes. Dividends received from local sources are tax exempt.
Capital gains - Capital gains are subject to a flat 15% rate.
Deductions and allowances - Instead of itemising deductions, taxpayers may elect the standard annual deduction of 20% of taxable income up to a maximum of BRL 12,194.
Deductions and allowances may include (subject to additional restrictions): social security taxes paid by the employee; contributions made to private Brazilian pension plans (up to 12% of gross income); alimony or pension payments under a court order; expenses incurred by self-employed individuals to produce business income or to maintain the source of such income; a standard monthly deduction of BRL 137.99 per dependent; educational expenses, up to an annual limit of BRL 2,592; unreimbursed payments for health insurance plans and medical, dental, psychotherapy and physical therapy expenses; and documented contributions to approved Brazilian cultural, artistic and audiovisual activities and donations to Brazilian Child and Youth Counsels, up to 6% of taxable income.
Tax Rates - No tax is levied on annual income up to BRL 17,208. Tax is levied as follows: (1) 7.5% for income between BRL 17,208 and 25,800; (2) 15% income between 25,800.01 and 34,392; (3) 22.5% for income between BRL 34,392.01 and 42,984; and (4) 27.5% for income exceeding BRL 42,984.
Nonresidents are taxed at a flat rate of 27.5% (on earned income) or 15% (on other income except dividends paid from a Brazilian entity, which are tax exempt). The source of income is determined by the location of the income payer.
Other taxes on individuals:
Capital duty - No
Stamp duty - No
Capital acquisitions tax - No
Real property tax - See "Real property tax" and "Transfer tax" under "Other taxes on corporations".
Inheritance/estate tax - States are authorised to tax inheritances at varying rates.
Net wealth/net worth tax - No
Social security - Employees contribute 7.65%-11%, depending on their salary categories.
Administration and compliance:
Tax year - Calendar year
Filing and payment - Tax is paid on a monthly basis either through withholding from salaries or by advance payment for the selfemployed.
Monthly advances also are required for income received outside of Brazil by Brazilian tax residents. All residents who are subject to income tax must prepare a final annual tax return by the last business day of April of the following year. The return must include a statement indicating all their property and rights (domestic or foreign).
Penalties - Noncompliance with the due date results in penalties of 1%, per month, over the tax due, limited to 20%. The minimum penalty of BRL 165.74 also applies if no tax was due.
Brazil Corporate Tax RatesBrazil corporate income tax is 15% plus a 10% surtax on taxable income exceeding BRL 240,000; making the final corporate income tax rate 25%.
Residence - A corporation is resident in Brazil if it is incorporated in Brazil.
Basis - Resident companies are taxed on worldwide income. A foreign company is subject to Brazilian taxation only if it carries out certain sales activities in Brazil through agents or representatives that are domiciled in the country and have the power to legally bind the foreign seller or through a domestic branch of the foreign seller. A representative acting as an agent, with the final transaction concluded by the nonresident company abroad, will not give rise to a legal presence in Brazil.
Taxable income - The basic income tax applies to operating profits derived by a company in Brazil. Operating profits are defined as gross operating receipts, less the cost of goods sold or services rendered; commercial, administrative and operating expenses; and other charges, reserves and losses that are authorised by law. Brazilian companies may opt to be taxed on actual or presumed income. The "lucro real" method is based on actual annual or quarterly taxable income, and the "lucro presumido" method is based on estimated or deemed taxable income. Qualifying small enterprises with annual gross income not exceeding BRL 2.4 million may elect to be taxed under a simplified regime (for corporate income tax, the tax on manufactured products (IPI), the social contributions on gross income, VAT on sales and services (ICMS), the tax on services (ISS) and social security contributions). (See also under "Accounting principles / financial statements".)
Taxation of dividends - Dividends received from other Brazilian companies and income derived from premiums received on the issuance of new shares are not included in taxable income.
Capital gains - Capital gains are treated the same as ordinary income (subject to restrictions on the offsetting of capital losses against ordinary profits in certain cases).
Capital gains realised by nonresidents on investments registered with the central bank are subject to a 15% withholding tax. If the capital gains are derived by a tax haven resident, the rate is increased to 25%. Foreign investors on the financial market may be subject to different rates.
Losses - Losses must be segregated as "operational" or "non-operational". Nonoperational losses may be set off only against non-operational gains. Tax losses incurred in 1 fiscal year may be carried forward indefinitely but the amount of the carryforward is limited to 30% of taxable income in each carryforward year. Carryback of losses is not allowed.
Tax Rate - Corporate income tax (IRPJ) is levied on the taxable profits of an entity at a rate of 15%. However, as noted below, taking into account the surtax and the social contribution on net profits, the combined rate is 34%.
Surtax - In addition to the statutory corporate income tax rate of 15%, a surtax of 10% on income in excess of BRL 240,000 per year is imposed on legal entities and a 9% social contribution tax (CSLL) is levied on adjusted net income. For financial institutions, the CSLL rate is 15%.
Alternative minimum tax - No
Foreign tax credit - A foreign tax credit for qualifying foreign taxes paid is available to offset (up to) the domestic tax (IRPJ and CSLL) imposed on foreign-source income.
Further limitations on the credit include a percompany limitation for foreign subsidiaries (some consolidation of branches and of lower tier subsidiaries is allowed) and a per-country limitation for foreign branches.
Participation exemption - Dividends received from other Brazilian companies are not included in taxable income.
Holding company regime - No
Incentives - R&D projects and information technology qualify for some direct assistance and tax relief. Under a recent expansion of R&D incentives, an exclusion is allowed from the corporate income tax base of 60% to 100% of R&D project expenses; an IPI reduction on the acquisition of assets; accelerated depreciation of R&D assets; and a credit for withholding tax due on royalty payments. Subsidised financing remains available to purchase capital goods, invest in infrastructure projects and build ships. Export sectors qualify for duty drawback on imports and for special financing through an exportpromotion program. Under a tax relief program for exporters, firms that earn at least 80% of their revenue from exports are exempt from PIS/PASEP and COFINS on investments in industrial goods and technology.
Dividends - No withholding tax is imposed on dividend distributions to nonresidents that are paid from profits earned as from 1 January 1996.
Interest - Interest paid to nonresidents is generally subject to a 15% withholding tax unless reduced by an applicable tax treaty. The rate is 25% if the recipient is domiciled in a tax haven.
Royalties - The general withholding tax rate on royalty payments and technical service and technical assistance fees, administrative assistance and similar payments to nonresidents is 15% unless reduced by an applicable tax treaty. Payments for technical services that do not involve the transfer of technology are subject to a 25% or 15% withholding tax. Thus, even though technical services are included within the scope of royalties, the tax authorities may charge a 25% rate, if not specifically addressed in a tax treaty. The Contribution for the Intervention in the Economic Domain (CIDE) also is imposed at a rate of 10% (CIDE was abolished with respect to software payments as from 1 January 2006).
Branch remittance tax - No
Other taxes on corporations:
Capital duty - No
Payroll tax - See "Social security", below.
Real property tax - The real property tax is collected by the municipality where property is located and is calculated on a deemed "sales price" of the property. The tax rate varies by municipality, but may be estimated in the range of 0.3% to 1.0%. Rural property tax is an annual tax assessed on the ownership of rural property at rates ranging from 0.03% to 20%, depending on the region and the utilisation of the property. Real estate transfer taxes also apply (see below).
Social security - Employers are required to make a contribution of 8.5% of wages to each worker's deferred salary account to the Length of Service Guarantee Fund (FGTS).
Employers also must contribute 20% of an employee's wages to the public pension system (National Institute for Social Security or INSS), as well as a maximum of 8.8% on other social security taxes.
Stamp duty - No
Transfer tax - A real estate transfer tax is due upon the transfer of title to real property (land, buildings). The tax rate is progressive, from 2% to 6%, calculated, roughly, on the sales price. The buyer is responsible for payment of the tax.
Other - Although not corporate income taxes, the PIS/PASEP (social integration program) and COFINS (tax for social security financing) are federal taxes imposed on gross revenue at the rates of 0.65% (PIS) and 3% (COFINS), where a Brazilian entity pays corporate income tax under the deemed taxable income regime. Where a Brazilian entity pays corporate income tax based on actual income, the PIS and COFINS rates are 1.65% and 7.6%, respectively. In the latter case, the Brazilian entity may use input PIS and COFINS credits to offset its PIS and COFINS liabilities. Eligible export companies are exempt as long as funds actually entered the country. The importation of goods and services is subject to PIS and COFINS at a combined rate of 9.25%. The tax on services (ISS) is a municipal tax imposed on the supply of services, other than services subject to ICMS. There is also a financial transactions tax (IOF). The banking tax (CPMF) was abolished in 2008.
Transfer pricing - Brazil's transfer pricing rules only apply to cross-border transactions between related parties and transactions with entities located in tax haven jurisdictions. The rules deviate substantially from the OECD Transfer Pricing Guidelines; they do not adopt the arm's length principle, but rather use fixed margins to calculate the transfer price. Additionally, transfer pricing rules require a cross-border loan agreement to be registered with the central bank for interest to be fully tax deductible. Otherwise, interest is deductible up to LIBOR + 3%.
Thin capitalisation - Brazil's first thin capitalisation rules entered into effect on 1 January 2010 for IRPJ and take effect on 16 March 2010 for CSLL. Under the rules, interest paid to related parties that are not located in tax a haven jurisdiction or that do not benefit from a preferential tax regime may be deducted on an accruals basis for corporate income tax purposes only (i) if the expenses are necessary for the company's activities, and (ii) both of the following thresholds are met: (a) the related party debtto-equity ratio does not exceed 2:1 calculated based on the proportion of related party debt to direct equity investment made by related parties; and (b) the overall debt-to-equity ratio does not exceed 2:1 based on the proportion of total debt to total direct equity investment made by related parties.
Interst paid to an entity or individual located in a tax haven or that benefits from a preferential tax regime (regardless of whether the parties are related) may be deducted only if the expenses (i) are necessary for the company's activities, and (ii) both of the following thresholds are met: (a) the amount of the Brazilian entity's indebtedness to the tax haven resident does not exceed 30% of the net equity of the Brazilian entity; and (b) the Brazilian entity's total indebtedness to all entities located in a tax haven jurisdiction or benefiting from a preferential tax regime does not exceed 30% of the net equity of the Brazilian entity.
Any excess interest will be treated as a nondeductible expense for IRPJ and CSLL purposes. The transfer pricing rules affecting cross-border loans (agreements registered with the central bank or Libor plus 3% spread) remain in effect, as do the general requirements for deductibility.
Controlled foreign companies - Profits earned by CFCs and certain foreign affiliates (non-controlled subsidiaries) of Brazilian entities are included in the base for calculating the IRPJ and CSLL liability of the Brazilian controlling or parent company.
Profits earned by CFCs and non-controlled subsidiaries of Brazilian companies will be considered available to the controlling or parent company in Brazil (and subject to taxation) at the end of each fiscal year.
Other - General anti-avoidance rules apply. Under the rules, any amount paid, credited, delivered, used or remitted directly or indirectly to an entity or individual incorporated or resident in a tax haven jurisdiction or benefiting from a preferential tax regime may be deducted only if the taxpayer can: identify the beneficial "recipient" of the proceeds; provide proof that the entity or individual has the operational capacity to carry out the transaction for which the payment is made; and submit documentation showing the purchase price paid and the receipt of the goods, rights or the use of services. See above under "Thin capitalisation" for additional rules specific to interest payments.
Disclosure requirements - No
Administration and compliance:
Tax year - Calendar year
Consolidated returns - Consolidated returns are not permitted; each company must file a separate return.
Filing requirements - Every business entity in Brazil (including corporations, partnerships, branches and agencies of companies domiciled abroad) must file an annual income tax return for the previous calendar year by the last working day of June. Corporate taxes (IRPJ and CSLL) are usually due on annual adjusted profit, with monthly advance payments; excess tax paid is available to offset future taxes.
Penalties - Late payment of IRPJ and CSLL is subject to penalties and interest.
Rulings - While there is no advance tax ruling system, Brazil allows formal consultations on the application of tax laws to the taxpayer's specific facts. The resulting decisions are binding only on the taxpayer, with the only possibility of an appeal dependent on the existence of inconsistent separate decisions, in which case an affected taxpayer may request a final statement that binds all taxpayers that have received decisions on the same facts/law.
Brazil Sales Tax / Value Added Tax RatesThere are 2 different VAT-type taxes in Brazil:
1) Federal VAT (IPI), and
2) State VAT (ICMS)
Federal VAT (IPI)
IPI is a federal level, single stage VAT-type tax levied on the manufacture of goods in Brazil and on the import of goods. Exports are exempt. For IPI purposes, the taxpayer is the manufacturer or the importer.
The national VAT (IPI) rates depend on the type of the product, at an average rate of 20%.
State VAT (ICMS)
ICMS is a value added tax levied by the Brazilian states on the circulation of goods and the provision of interstate and inter-municipal transportation and communications services. The tax applies even when a transaction and the provision of services commence in another country.
The state VAT (ICMS) is charged at rates ranging from 7% - 25%.
Intrastate transactions are taxed at 18%, interstate transactions are taxed at 7% or 12%, and most imports are taxed at between 18% and 25%. The lower rates normally are charged on transfers to less developed states. Some states offer rate reductions or later payment dates as a fiscal incentive for the installation of factories. Communication services are taxed at between 13% and 25%. ICMS is a non-cumulative tax.
In addition to above taxes in Brazil, Profit Participation Contribution (PIS) and Social Security Financing Contribution (COFINS) are also taxes which operate similar to a VAT mechanism for companies paying corporate income tax based on actual income. Also Service Tax (ISS) is imposed on the supply of services.