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 text of 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:
|Up to BRL 6,000||0%|
|From BRL 6,000.01 to BRL 50,000||15%|
|Over BRL 50,000.01||22.5%|
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.
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.