Articles (eng)
Which brazilian tax regime should you choose
It’s important to remember that you’ll need to indicate which tax system to opt for in 2021. If you choose the wrong tax regime, you might actually lose money, paying more taxes than you should.
In Brazil, there are basically three systems of taxation for business income that the taxpayer can elect[1].
SIMPLES Nacional Tax Method
The first regime is called SIMPLES Nacional. This is a simplified system of tax payments, and is intended for small- and medium-sized companies – that is, for companies that generate a turnover of up to 4,800,000 Brazilian Reals per year[2].
Under the SIMPLES tax regime, eligible companies pay a single tax based on their monthly gross income.
The taxpayer will pay a progressive rate, established by law, according to its turnover and field of activity.
Unfortunately, there are some limitations to the SIMPLES tax regime, for example if the shareholder is located abroad, or it’s a company, as only individuals can be shareholders.
Presumed Tax Method
Under this method, income is established on a quarterly basis and should correspond to certain percentages, fixed by law, and applied over gross revenue. The presumed profit margins are basically 8 percent for industrial and commercial activities, and 32 percent for service activities, although there are some exceptions.
After finding a presumed profit, companies will be subject to a 15 percent of Corporate Income Tax , plus a 10 percent additional rate on income exceeding 20,000 BRL per month.
Thus, even if the company has achieved a higher profit margin, taxation will only be on the pre-fixed margin.
Presumed Profit may be interesting for companies that have profit margins higher than the presumed rate, have a low operating costs, and with a low payroll, however it is still necessary to verify whether or not the National Simples or Real Profit method would offer a better advantage.
But beware: if the actual profit margin is lower than the pre-fixed rate, taxes will be calculated on the presumed margin.
Real Profit Method
Under the Real Profit method, the income tax payed by a company is based on its actual taxable income, after computing all income, gains, cost and expenses. It can be calculated on a quarterly or annual basis.
In some cases, the Real Profit method is mandatory for legal entities. For example, this would be the case if the total annual revenues during the previous year exceeded 78,000,000 BRL.
After calculating a real profit, companies would be subject to a 15 percent of Corporate Income Tax, plus an additional 10 percent rate on income exceeding 20,000 BRL per month.
Real Profit method is usually a good choice if a company has profit, or if it began its operations with high expenses.
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[1] The other tax regime is an Arbitrary Profit Method. This regime is used by Brazilian tax administration to assess tax based on arbitrary profit if a taxpayer fails to comply with the rules and regulation for keeping records and computing taxable income. In this sense, we do not consider it as an option for taxpayer.
[2] From 2018, this limit will be 4,800,000 BRL per year.
DEF Declaration to the Central Bank of Brazil
Companies located in Brazil that have partners resident or domiciled abroad must submit an Economic-Financial Statement (DEF) to the Central Bank of Brazil.
Which companies must file the DEF?
According to Central Bank rules, all companies headquartered in Brazil and which have shareholders that are individuals or legal entities resident abroad must file the DEF with the Central Bank of Brazil every year.
Even Brazilian companies in which there has been no change to their corporate structure or financial status from the previous year are required to send in the DEF.
How often?
Companies that have assets or net worth less than BRL 250,000,000.00 must submit 1 declaration per year. The deadline is March 31 and is to be based on financial statements from the previous year ending Dec 31.
Companies that have assets or equity great than or equal to BRL 250,000,000.00 must submit 4 declarations per year.
Information to be declared
Companies must send in their financial information, detailing, among other information, their net worth and amount of capital paid-in by each foreign investor.
Penalties
Here are the penalties for violations:
I - Registering or submitting a declaration in disagreement with the rules. Penalty: 1% of the amount subject to registration or declaration, limited to BRL 25,000.00.
II - Providing incorrect or incomplete information. Penalty: 2% of the amount subject to registration or declaration, limited to BRL 50,000.00.
III – Failure to register, failure to submit a declaration, or failure to present supporting documentation for the information provided to the Central Bank of Brazil. Penalty: 5% of the amount subject to registration or declaration, limited to BRL 125,000.00.
IV - Providing false information in a registration or declaration. Penalty: 10% of the amount subject to registration or declaration, limited to BRL 250,000.00.
If you are interested, we are available to assist your company on this.
Legal aspects of becoming an angel investor in Brazil
Since the beginning of 2017, Supplementary Law n° 156/2016 has established rules for being an angel investor in Brazil.
According to the law, angel investors aren’t considered partners, nor have management duties or the right to vote on a company’s board of directors.
Congress passed a law in 2017 to regulate the relationship between startups and angel investors, though it doesn’t apply to cases in which the investor is simply buying shares. (You should note that these rules only refer to startups that have opted for the Simples Nacional tax regime[1].)
Participation Agreement
Brazilian law also mandates that you’ll need to formalize your relationship with a startup through by creating a participation agreement.
The law itself doesn’t go into detail on the formatting of the contract, and grants only certain restrictions – for example, when the investment period should last no longer than 7 years. The investor should be compensated within no more than 5 years, though payments won’t start until two years after the capital injection. In addition, the investor’s remuneration cannot exceed 50 percent of the startup’s profits.
Tax Structures
Taxation might not be the most exciting topic for most of us, but it’s an important one. The Brazilian Tax Administration’s Office stipulates that the rates imposed on an angel investor depend on how much time he or she participates in the startup.
Here’s how it goes:
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5 percent for payments made to the investor up to 180 days after the date of the investment;
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20 percent for payments made between 181 and 360 after the date of the investment;
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5 percent for payments made between 361 and 720 days after the date of the investment;
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15 percent for payments made after 720 days
[1] Simples Tax Regime: This is a simplified system of tax payments, and is intended for small- and medium-sized companies – that is, for companies that generate a turnover of up to 3,600,000 Brazilian Reals per year. Under the Simples tax regime, eligible companies pay a single tax based on their monthly gross income.
Foreign nationals can acquire real state in Brazil since 2002 if meeting some conditions; check some tips….
Can foreigners buy real estate in Brazil? With regard to properties located in Brazil’s urban areas, foreigners are free to buy this type of property, and these properties can be for either commercial or residential use. The 2002 Brazilian Civil Code and Law of Public Registry guarantee this right for both Brazilians and foreigners.
Of course, there are procedures to follow. First, the buyer needs to acquire a Brazilian tax identification number: CPF, for individuals and CNPJ, for companies. If the buyer is married, the spouse also needs a CPF number.
But before buying, you need to take into account some restrictions linked to rural real estate and properties located in the border areas.
Rural Real Estate In Brazil
If you’re a foreign company or a foreign individual wanting to buy rural property within the Brazilian territory, you’ll need to be aware of some of the restrictions in place. It’s important to stress that you can only buy rural property in Brazil if you’re already a Brazilian resident.
Brazilian law states that foreign companies interested in acquiring rural land need to first apply for an authorization and licensing to be granted by the Brazilian authority responsible for the management of land in Brazil (INCRA), who’s in charge of approving all acquisitions. If the piece of property isn’t larger than 3 “module of land” (MEI), it won’t be necessary to apply to INCRA. In any case, all land acquisitions need to have a surface area under 50 MEI.
In addition to the restrictions listed above, the total area acquired can’t surpass 25% of the total area of a given municipality. Foreigners of the same nationality cannot own more than 40% of the 25% of the total area of the municipality.
Nowadays, after a legal opinion issued by Federal Attorney´s Office, Brazilian companies with equity control are subject to the same regime imposed to foreign companies.
Properties Located In The Border Area
The acquisition of real estate in the border area is a particularly sensitive topic for national Defense and is subject to authorization. The border area is a strip of 150km starting from the border of the Brazilian territory.
Documents To Be Analyzed
Before you sign any purchase contracts, it is strongly recommended to analyze a series of documents related to the property and the current owner. The goal is to take notice of any parts that may harm, or even cancel, the sale. If you buy a piece of land in Brazil, it is essential to analyze the title of the property as well as the certificates issued by local courts, in order to have a “clearance certificate” of the real estate situation.
For example, it’s necessary to analyze documents related to the building: if local taxes have been paid and are up to date; and to check the accuracy of the property title, etc.
And in terms of the owner, it’s important to verify that he or she doesn’t have any legal problems. For example, the property of an employee can be seized by the Labor Court to pay damages to a wronged employee.
How to drive in Brazil as a foreigner
You can drive in Brazil for a few days if you carry your driver’s license from your home country. However, you do need to follow certain rules
Drive Brazil as foreigner
According to Brazil’s traffic code, a foreigner can legally drive in Brazil for up to 180 days with a driver’s license from his or her country of origin, if the country is part of the Vienna Convention or has similar rules to the Brazilian drivers’ code. When driving in Brazil, you should carry an ID, i.e., your passport, and the foreign driver’s license. Oh, and the person must be at least 18 years old.
After 180 days, What Should Be Done?
After 180 days, you must obtain a Brazilian Driver’s License . But first, you need to be screened for physical and mental fitness, and undergo a psychological evaluation, pursuant to art. 147 of the Brazilian National Traffic Council.
If the country of the driver’s qualification is not signed or does not meet the principle of reciprocity, for any length of stay in the country, the driver must pass the examination conducted by DMV (National Traffic Department, addresses of the cities where the games occur can be found below).
For the Brazilian Driver’s license, you must submit the following documents:
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Original and copy of the permanent provisional or temporary National Alien Registration (RNE). If you cannot provide this document, the Federal Police Qualifying Certificate number reported in your RNE personal data or the number of the RNE protocol request will be necessary.
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Original and copy of passport;
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Original and copy of the CPF (Taxpayer’s Identity Roll);
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Original and copy of proof of address issued until three months prior to the date of the request made by the person concerned. Electricity bills, water, gas, telephone, property tax, condo tax, proof of INSS (National Institute of Social Insurance) or correspondence originating from financial, public or private institutions or federal, state or municipal government agencies. The proof of address must be in the name of the person concerned or close relative (spouse, parents, siblings and children), upon presentation of the original document and copy proving kinship or marital status (ID, marriage certificate or deed of stable union, birth certificate);
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Original and copy of valid foreign Driver’s License with translation;
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Medical and psychometric test;
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In the capital state, also accepted: Proof of payment of Driver’s License issuance.
Getting your brazilian document as an expat
Once you move to Brazil as an expat, you’ll need to get your Brazilian papers in order. There are two essential documents: the CPF and the RNE. The first literally mean “Enrollment of Physical Persons” (as opposed to legal entities and companies), and identifies foreigners and Brazilians alike for Brazil’s internal revenue authorities. RNE means “National Database of Foreigners” – this will be your ID card in Brazil.
How to Get a CPF
You must have a CPF to open a bank account, buy real estate or vehicles, invest in the stock market, and complete your annual tax returns in Brazil.
Foreigners can apply for a CPF either in person or via power-of-attorney at branches of the two major Brazilian public banks – Banco do Brasil and Caixa Econômica Federal – or post office bureaus. If you live outside of Brazil, but wish to perform an activity that require a CPF number, you can apply for one at the Brazilian Consulate in your country of residence.
To apply, you must first fill out an electronic form on the official website for Brazil’s revenue authorities (click here). After printing it, and within 15 days, take the form and other required documents (such as your birth certificate) to the Brazilian Consulate or Embassy.
After the request is processed, the applicant will receive a definitive and unique number. It is important to remember that your CPF card does not count as valid identification, since it doesn’t contain a photo or a signature.
RNE – Your ID card in Brazil
The RNE is to foreigners what an ID card is to Brazilians. Upon arriving in Brazil with your visa, foreigners have up to 30 days to apply for a RNE before the Brazilian Federal Police, in the city where you live.
This is an extremely important document, and a foreign resident is considered legal in Brazil only if he or she possesses this document. The RNE is also required to apply for a work permit, open a bank account, and rent a house, among other things.
You will need the following documents:
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Passports, with photocopies of all used pages;
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Your original visa;
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Two recent photographs (in a 3x4cm format);
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Embarkation/disembarkation card;
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Proof of payment of all required fees.
What does FGTS mean?
Any employee who works in Brazil is familiar with the acronym FGTS, although not many know what it actually means. The FGTS (“Fundo de Garantia do Tempo de Serviço”) is a scheme that has existed under Brazilian law since 1966 and aims to create “personal reserve savings” for employees. It generates substantial funds that are then used to finance programs related to low-income housing, encourage urbanization projects, and develop infrastructure.
In September 2016 (the 50th anniversary of FGTS), the scheme’s total assets amounted to $498 billion Reals. Over ten million houses have been financed since 1966.
How Does The FGTS Work?
The FGTS is an employee right and an employer obligation.
Any employee covered by the CLT (the Brazilian standard labor legislation), including temporary, freelance and rural workers, as well as athletes and CEOs (“Diretores não empregados”), must be affiliated with the FGTS through a personal bank account. It should be opened by the employer at the name of the employee at the Caixa Econômica Federal.
Domestic employees (“empregadas domésticas”) have been recently included in the scope of the FGTS (as from the enforcement in October 2015 of the Complementary Law 150/2015). Before this date, the employer had an option as to whether or not to affiliate domestic employees.
A Reserve To Be Used Under Certain Circumstances
Before the 7th day of each month, the employer must make a deposit in each individual bank account an amount equal to 8% of the employee’s monthly salary. The employee can recover the accrued amounts only under certain conditions, which are strictly indicated by law.
An employee may notably ask for the payment in the event of:
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Dismissal without cause;
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Expiration of a fixed-term employment contract;
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End of the employment contract due to the company‘s closure;
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Retirement;
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Death;
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Personal emergency (like a natural disaster that affects the employee’s residence);
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Serious disease (such as cancer or AIDS) affecting the employee or a dependent;
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Purchase of an employee residence;
If the employee remains outside of the FGTS scheme during a minimum period of three years. This would most notably be the case for an expatriate left Brazil and would no longer be affiliated with the FGTS scheme.
As A Foreigner, How Can You Recover These Accrued Amounts?
An expatriate having left Brazil without dismissal by his or her Brazilian employer (resignation or breach of the contract by the employee, or resignation and transfer within the Group), must wait for three years before requesting payment of the accrued sums.
Since the expatriate no longer lives and works in Brazil, is he or she obliged to return to Brazil to receive the payment?
The answer will depend on the individual’s new location. Indeed, to ease the process, the FGTS rules provide that in certain locations, the Brazilian Consulate can monitor the request.
Therefore, there’s a list of 25 countries, which includes Argentina, Bolivia, Uruguay, Paraguay, USA, UK, Japan, Germany, France, Italy and Portugal, in which the Brazilian Consulates can receive the required documentation and manage the process.
In this case, the expatriate must: fill a form (personal identity, company data, Brazilian bank account data); schedule a meeting with the Brazilian Consulate; and sign the completed form in the presence of a public agent in the Consulate. Then, the accrued accounts will be transferred by the Caixa Econômica Federal to the Brazilian bank account of the expatriate.
It is important to underline that the Caixa Econômica Federal will only transfer the accrued amounts to a Brazilian bank account, which might be difficult since the expatriate would have left Brazil three years prior. If the expatriate has not maintained a bank account in Brazil, then someone else can be appointed (such as a good friend or a lawyer) to recover the sum and then make a foreign transfer.
Brazilian Permanent Investor Visa: New Rules
The Brazilian Labor Ministry recently changed the rules to obtain an Investor Visa. The newly rules were issued by the Normative Resolution (RN) n° 118, dated October 21, 2015.
The main amendment concerns the minimum amount to be invested in a Brazilian company. This minimum investment, which previously amounted to R$ 150,000, now amounts to R$ 500,000. (Art. 2 of the RN n° 118).
Hopefully, this substantial increase in the minimum investment is balanced by two exceptions.
Firstly, in order to avoid a decrease in the foreign investments, the Brazilian Authorities maintained the minimum threshold of R$150,000 for high-added value companies.
As a consequence, an entrepreneur intending to invest less than R$ 500,000 (but with a required minimum of R$ 150,000) may obtain a permanent visa, provided that he invests in an innovative, research, scientific or technologic field. (Art. 3 of the RN n° 118).
Then, the individual investor will have to demonstrate that the Brazilian company, in which he wishes to invest, complies with, at least, one of the following conditions:
I – having received an investment, a financial support or resources for supporting innovation from a Government Agency;
II – be located in a Science Park (“parque technologico”);
III – be or have been developed by an incubator;
IV – having been finalist of a support program for startups;
V – having been part of a startups accelerator in Brazil.
According to the second exception to the R$ 500,000-threshold, the National Immigration Council may also grant a permanent investor visa to an individual investing more than R$ 150,000 in a company, which product, process or service is to be introduced to the market or is its main activity, complying with these conditions (Art. 3 §2 of the RN n°118):
I – uniqueness / originality of the product, process or service,
II – importance of the penetration rate,
III – high potential of value creation.
In addition, the Brazilian Government still requires to:
• fund the investment in foreign currency, according to an investment and business plan,
• link the investment to productive activities and,
• demonstrate job creation and revenues generation in Brazil.
Expatriates: Income tax in Brazil
As of March 1st 2016, Brazilian tax-residents need to send their tax-returns on the income earned in Brazil to the Brazilian tax authorities.
This “adjustment” tax-return (“Declaração de imposto de renda de pessoa fisica” (DIRPF) in Portuguese) is mandatory and must be sent to the Brazilian tax authorities by April 30, 2016.
This is called an “adjustment” tax-return because the individuals (expatriates in this case) have already paid income tax along the year. Indeed, the income tax is (i) either withheld on salary or (ii), in case of income coming from abroad, monthly paid through specific documentation (“declarações Carnê-leão”).
In the framework of this annual “adjustment” tax-return, Brazilians tax-residents will summarize and adjust the payments to be made, after several deductions due to personal situation.
– Taxation on personal income in Brazil:
The Brazilian income tax system takes into consideration both income and assets. Indeed, in addition to the income declaration, the tax-resident must also declare all his/her assets (real estate properties, bank accounts in Brazil and abroad). This declaration of assets is for information purpose only and the taxation will be calculated and paid only on the income part.
Foreigners and expatriates may believe that these obligations do not apply to them. However, according to articles 2 and 6 of the Brazilian tax law (IN RFB n° 208/2002), foreigners are also submitted to tax obligations in Brazil:
– As soon as they enter in Brazil with a permanent visa;
– If they enter in Brazil with a temporary visa and have signed an employment contract;
– If they enter in Brazil with a temporary visa but without any employment contract, in this case, if they stayed in Brazil more than 183 days, consecutives or not, over a period of 12 months.
On the contrary, a Brazilian national, who is not resident in Brazil, will not be submitted to the Brazilian income taxation.
Any Brazilian tax-resident leaving Brazil to settle abroad must inform the Brazilian tax authorities. Otherwise, he/she is supposed to remain a Brazilian tax-resident over one year and income tax will be to be paid over this one-year period.
– Tax amount
Brazil applies a principle of worldwide taxation. Any income earned by a Brazilian tax-resident, in Brazil or abroad, is taxable in Brazil.
Specific rules may apply for shares or real estate properties.
– Can we avoid double-taxation?
Brazilian legislation allows a compensation between the taxes paid abroad and the taxes to be paid in Brazil, if a bilateral agreement has been signed between both countries (Law n. 4862/62, reported in article 103 of the RIR /99).
Brazil signed taxation bilateral agreement with 29 countries. These agreements provide that taxes paid abroad may be deducted from the amounts paid in Brazil.
– What is the income tax rate?
In Brazil, the income tax burden is lower than in most of the European countries. A progressive scale is applied, with a maximum rate of 27.5%. Several amounts may also be deducted in order to reduce the taxable income.
As a summary, the tax return is mandatory if:
o You earned annual taxable income superior to R$ 28.123,91.
o You earned nontaxable income or income exclusively withheld for an amount superior to R$ 40.000,00.
o You earned capital gains from sales of assets or rights or from operations on financial markets ;
o You owed on December 31, 2015, assets or rights, included unbuilt lands, for an amount equal or superior to R$ 300.000,00.
o You became Brazilian tax-resident over the year 2015 and you were still tax-resident on December 31, 2015.