/DISCLAIMER: This post was last modified on 15 May 2023. Some information in this article may not be updated.

Brazil recently enacted a new tax regime that would affect its citizens, particularly those with assets in other countries. Brazilian President Luiz Inacio Lula da Silva issued an executive order to tax capital income from financial investments obtained by Brazilian residents abroad.  

According to the text of the Provisional Measure (MP) No. 1,171 published by the Brazilian Federal Government, income obtained beginning on 1 January 2024 will be considered. Meanwhile, according to current regulations, profits made before January 2024 will only be taxed in Brazil when individuals have access to them.  

The MP came into force on 1 May 2023. Before it can be formally enacted into law, the Brazilian Congress must evaluate, amend and approve the MP within four months.  

Financial investments obtained abroad

The measure states that income earned from financial investments made overseas will be taxed upon the sale or maturity of assets. On the other hand, profits and dividends earned by controlled entities will be taxed on 31 December of each year. The new law also involves the taxation of trust assets. However, it does not apply to assets that were not reported on the tax return for the fiscal year 2022.  

The following progressive rates apply to income tax in Brazil on the financial investments made abroad by Brazilian residents:  

This applies to real estate, investments, bank accounts and any other assets held outside the country.  

The reforms are part of the government’s efforts to boost revenue and minimise the deficit in its budget. According to the Finance Ministry, the measure has the potential to raise around 3.2 billion reais ($641 million) in 2023, nearly 3.6 billion reais in 2024 and 6.7 billion reais in 2025.  

The new tax reform is also imposing stricter reporting requirements. Brazilian taxpayers with assets abroad must now report all foreign assets in their annual tax return regardless of value. Failure to comply may result in additional tax liabilities, penalties and fines. Moreover, the imposition of the tax on foreign assets will also add to the tax burden of individuals who have significant assets overseas, reducing their disposable income. 

In conclusion 

The new tax reforms in Brazil will significantly impact the fiscal situation of Brazilian citizens with assets in other countries. Additionally, for those with significant assets abroad, the tax on foreign assets and the new reporting requirements will result in a higher tax burden. 

Although the government anticipates that these reforms will aid in strengthening its financial position, there are concerns that they may have unexpected consequences, such as reducing investment in the country and adding to the administrative responsibilities of taxpayers. 

Why work with Bolder Group  

The introduction of new stricter regulations towards financial investments poses an additional challenge to asset managers. At Bolder Group, we keep our clients updated on the latest regulatory developments and assist them with their compliance requirements and reporting needs. 

Please consult with Bolder Group representatives on how the new reforms may affect your current assets abroad. Find out what steps you need to make to stay compliant with the new legislative measures in Brazil. 

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.