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How to ensure your fiscal regularity in Brazil and Portugal: check here

13 de April, 2019

How to ensure your fiscal regularity in Brazil and Portugal: check here

Reading: 8 min

This is a recurring theme among 10 out of 10 Brazilians who leave Brazil and still have assets or income in the country. Exhaustion is impossible! But, we will try to contribute here “dissecting” part of the jumble of rules of the Federal Revenue of Brazil that involves the Individual Income Tax for those who live in Portugal and are or are not as a non-resident tax resident in Brazil.

Current regulation of income tax in Brazil

The current base rule for the understanding of income tax in Brazil is Decree 9,580, of November 2018, which we commonly call the Income Tax Regulation. In it, we have articles that deal with personal income tax of individuals and, among these, those that are dedicated to non-resident individuals. It is important to highlight the validity of the decree, since most of the publications on the Internet are based on the old Income Tax Regulations. However, there is a list of normative instructions and laws specific to each case.

Understanding a little more about this topic can free you from fines and increased collection of income tax on your income, in addition to trying to contribute to a possible lower bite of the lion from the study made by a team of accountants working in the tax area, in tune with the rules of the Federal Revenue of Brazil and the Finance of Portugal. Let’s go!

What is being a non-resident tax resident in Brazil?

The Brazilian Tax Authorities qualify as non-resident tax, the one who ceases to live in Brazil with animus to live abroad or the one who stays outside the country for more than 12 consecutive months, even if he does not want to live abroad.

So, working on a temporary project abroad, doing a master’s degree or even living a sabbatical period, which exceeds 12 consecutive months, already qualifies you as a non-resident and brings you tax consequences.

What is Definitive Output Communication?

If you leave the country with the intention of living abroad, you must inform the Federal Revenue Service of Brazil (RFB) through the Communication of Definitive Departure from the date of your trip until the last day of February of the following year. The operation takes place through the RFB website and has no major difficulties.

If you were not sure that you would be out of the country for more than 12 months, studying or even traveling, and you realize that you will exceed this time limit, you will already be considered a non-resident from the first day of the 13th consecutive month, and you must also make the Definitive Exit Communication until the last day of February of the following year.

Understand that this Communication is not an option, it is a necessary accessory obligation! Until the date of publication of this article, failure to submit or submit it after the deadline will result in a fine ranging from 1% per month of delay to a maximum of 20% of the amount of tax due, if any, with a minimum of R$ 165.74.

We warn that this obligation is for all people who have CPF and leave the country in the criteria mentioned, including exempt from IR. And if you have dependents, you should inform them as well.

What about my income tax return?

The Brazilian Tax Authorities require that, once the definitive exit is characterized, the Definitive Exit Declaration must be transmitted. There you inform the period that you were resident and the program will make the calculation of the tax proportional to the months. For the period that was resident, the progressive table and legal discounts will be applied. The period as a non-resident, on the other hand, will apply the IR rules exclusively at source, with no right to refund, and some benefits from deductions will be lost for most transactions with income and capital gain.

The transmission period will be the same for residents, which today, in the official calendar, comprises the months of March and April of the following fiscal year, as well as any Income Tax generated by the Definitive Exit Statement must be collected in a single quota by the last business day of April.

I’ve informed the tax authorities. Do I need to inform anyone else?

Yes, you should inform all your payment sources: banks in which you have financial investments, real estate tenants, private pension, INSS etc..

If you do not inform, these institutions will not make the withholding tax and, any collection or withholding less than due, will allow a fine by the authorities of the Federal Revenue Service with collection of the difference of IR due with the addition of interest Selic and fine of 75% on the amount outstanding.

Will I continue with active CPF, banking operations, etc?

Yes, these guidelines are only for tax purposes and to avoid double taxation in the new country that resides and that Brazil has a tax agreement.
You may consider doing any kind of financial transaction in Brazil: buying real estate, selling goods, opening businesses, etc., but you will be taxed as a non-resident on your own.

Portuguese Citizenship: who has the right and how to acquire it.

income tax return

In which types of income, income, income or operations do the rates differ for residents and non-residents?

There are several of them! We will try to put here some, the most common and that can reach the largest number of people who live in Portugal, especially:

Income from salaried employment, pensions and public or private pensions

Non-residents who receive their salaries from a paying source in Brazil, as well as those who are retired, pensioner or receive sickness or accident aid by the INSS, or Private Pension Plan, regardless of the amount they receive, will be taxed at source at the rate of 25% of the IRPF.

Note also that, even if the value were a minimum wage, considered exempt from IR, the taxation will occur.

The same goes for those who are suffering from serious illness or are over 65 years old, the IR exemption provided is exclusive to residents.

See how the period of the INSS of Brazil for retirement in Portugal looks like.

Rent

For these, the taxation will be 15% of IR at source and the collection of the tax must be made in the name of the CPF of an attorney-in-fact by means of a DARF with a specific code. At least the legislation allows to deduct the amount of taxes, fees and emoluments levied on the good that produces the income among other specific expenses.

Capital gain on sale of real estate

The legislation provides that the withholding tax shall be 15% exclusive at source. However, the only possible discount is the brokerage discount. The benefits of fractional deduction according to the age of the building are not posted.

Income from financial investments

Income from fixed-income financial investments and investment funds, net gains from transactions carried out on stock exchanges, commodities exchanges, futures exchanges and the like, among others, are subject to the same income tax rules as those applicable to Brazilian residents.

However, one should be aware of the exceptions, some of which are mentioned:
1. In the case of investments in equity investment funds, registered or not in a stock exchange, the withheld IRPF will be 10%;
2. In the case of fixed income financial investments, made in the over-the-counter market or on the stock exchange, the IRPF will be 15%;
3. In the operations carried out in stock, commodities, futures and similar exchanges, with the exception of the conjugated operations and in the operations with gold, financial assets, over-the-counter, there is no incidence of IRPF.

Corporate profits and dividends

IRPF is not levied on profit compensation and dividends are calculated based on the results obtained by the legal entity from its partners or non-resident shareholders.

Royalties

We signal this, because there are many people who have family lands with oil exploration, very common in Brazil. They will have to inform the paying source and suffer the withholding of 15% of the withholding tax.

As a non-resident in Brazil, should I make the Declaration to the Portuguese Finance Department?

The question is: if you earn income from paying sources in Portugal, you will have to make your IRS declaration. In any case, in order to “improve” your financial profile with banking institutions, for example, we recommend that everyone, even if they do not earn income in Portugal, inform their income or assets in Brazil. It may be an important document, for example, for renting property.

And I, who remain a resident, traveling within the limit of 12 months to Brazil, have something to worry about the Finances in Portugal?

If you maintain your status as a tax resident in Brazil and Portugal, the income, capital gains, profits etc. earned in each country are subject to taxation by Income Tax and/or IRS, normally. Under the Agreement to avoid double taxation between Brazil and Portugal, amounts that have been withheld in one country may be offset against the tax due in the other state, i.e., it is possible to hold a meeting of accounts.

If this is the case for you, we always recommend that you have the specialist assistance of an accountant who can understand taxation in both countries for this case, including to assess whether health and education deductions are more advantageous in one or the other declaration.

If you have not made the definitive exit and have income in Brazil, as well as live and earn income in Portugal will have to comply with the tax obligations of both countries, including annual transmission of the respective income tax returns (IRPF and IRS) and payment of taxes, remembering to declare in both returns the financial resources, assets and rights in each country, properly!

If you live in a country other than Portugal

If you are in another country, check if there is an agreement to avoid double taxation between Brazil and this country. We also warn that if you are in a favored tax country, which we call “tax haven”, all the rates mentioned for income earned in Brazil are set at 25% of Income Tax at source.

If you still have any questions or would like additional information about your tax situation in Brazil and Portugal, our team is at your disposal to assist you in your planning.

*This article is for information purposes only, and is not intended to exhaust the subject or to be used to make decisions of its readers on the subject.

Portuguese nationality or residence visa: what should I apply for? See in this article.

Article published on the Euro Tips website: https://www.eurodicas.com.br/como-assegurar-sua-regularidade-fiscal-no-brasil-e-em-portugal/

Author: Verenna Melo
Social Security and Tax Consulting

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