Foreigners are Required to Declare their International Assets to the Brazilian IRS
May 27, 2012 By Lubbad Law Office
According to our understanding and as a result of an extensive study of tax law, IRS internal norms, as well as the law regulating foreigners’ status in Brazil. We have come to the following understanding of the ever so controversy question, do foreigners need to declare their international assets in Brazil when having permanent visa?
It is our view that foreigners with permanent visa are not required to make their tax declaration for all their assets – Brazil and international; this is, unless fouling within the residency status in the country or have assets and investments in Brazil - in this case, resident or not the foreigner must make the annual statement of all their profits made in Brazil.
Initially we need to understand that in Brazil, by law – specifically the civil cod, there is a very well defined difference between residency and domicile. The concept creates rights and obligations that will characterize and define our understanding of a resident to a domiciled foreigner.
What is a residence? Reading in to the civil code, article 70, the natural person's residence and sole domicile is the place where a person has his permanent residency, location of living and resides in a permanent definitive manner.
However when talking about domicile, the law defines it as location, especially when looking in the possibility of a natural person, having several residences where, alternately, lives, or deems to be his home, thus considering all and any of them as his residency. That and it can be any place; it is also considered the persons domicile the location of his profession, the place where he exercises his job. By law, if the person exercises his profession in several places, each of which can be considered as domicile yet never residency. This is very clear in the civil code as we analyze article 73, there it clearly stipulates that the law considers domicile as home for the person who has not regular residency in a cretin location thus it is a place where legally he can be found and considered as located in independent of him physically benign there.
Versus home residence: the residence of residence differs because this is the place where the person lives. If you have multiple residences, where he lives alternately, any one will be considered home (CC, art. 71). While the essence of the home is purely legal, the residence is merely factual.
The IRS thru an internal executive instruction, NOT LAW, defines that a person is deemed as resident and domiciled at the same time in Brazil, country, when proven that he living in the country for a period exceeding 183 days, then, he is accountable to the IRS. Thus if having lived in the country for less than 180 days, proven, he is considered as domiciled only – so not obligated front of the IRS to declare his international assets.
The IRS, continues, thru the same internal executive instruction defining that a foreigner is obliged to declare his entire assets international as well as Brazilian when holding a permanent visa; thus, for the IRS a foreigner is deemed automatically domiciled as well as resident. For our understanding this is totally wrong and goes against the constitution, the law, as well as it goes in several times against it self – the IRS internal executive instruction – where in the text it goes in to contradiction crating conflicting concepts, contradictory rights and obligations.
I initiate the fact my analyses with the definition of what is the difference between permanent and temporary with permanent status visas. Thus, for a visa to be permanent it has to be one of the following visa base category:
- Fatherhood or Motherhood - family visa;
- Retirement visa;
- Matrimony visa; and
- Refuge Visa.
In the visas above mentioned – all considered as permanent visas since all have date to start yet with no date for end. Foreigner is obliged of declaring his taxes regarding profits gained or made out and inside the country.
Foreigner with permanent visa can request to have his name and CPF taken out of the IRS system when proving that he has the intention or is living more than 183 days outside of the country and has no intention of living in a permanent manner in the country for the next 2 years – thus having only domicile in the country.
For those who acquired temporary with permanent status visa – in our understanding they have just accoutered the right to be domiciled in the country only and nothing more. Thus, for a visa to be temporary with permanent status it has to be one of the following visa base category:
- Employment visa;
- Investor visa;
- Professor Visa;
- Scientists Visa;
- Archeology visa; and
- Religious visa.
In the visas above mentioned – all are considered as temporary visas since all start with date to end and all are conditioned to reasons of activation and validity. Foreigner is exempt of declaring his taxes regarding profits gained or made out of the country. Yet not to be understood as exempt from declaring and paying his taxes from profits realized inside the country.
Even thou considered temporary the visa has itself transformed in to status of permanent when foreigner reaches 184 days, consecutive or not, stay in Brazil, within a period of twelve months;
At the time of obtaining the temporary / permanent visa or employment contract when it had occurred before completing 184 days, consecutive or not, stay in Brazil, within a period of twelve months.
Since the person who arrived here with a permanent visa has no period of "grace", i.e. from the date of arrival is already a resident and is subject to the same laws and penalties applied to other Brazilian taxpayers.
Housing Defines Tax Treatment
The income received by foreign to complete the 183-day period, that is, a time when it is not considered a resident, are taxed only at source or in final form, as follows:
A) Rate of 25% collected directly from the source in the case of income from work, with or without employment, retirement, death pension or services;
B) Rate of 15% for other income which are not considered earned income.
Residents: How to Declare their IR
Foreigners who are residents in the country are obliged to declare and pay the same taxation as that required of Brazilian taxpayers. Thus, income derived from sources abroad is subject to mandatory monthly gathering income tax.
It should be noted that income derived from foreign sources by the holder of temporary visa without an employment contract are exempt from tax in the country and should not be taxed in a period of up to 183 days of stay in Brazil for a year.
When the foreigner is withdrawn from the country automatically lose residency status from the date of delivery of the Declaration of Final Departure of the country. In the declaration of IR last year, will have to submit a statement out on the income between the first January and the date on which the certificate is required for negative taxes.
Bi-taxation: How it Works
For foreigners who receive income from abroad, in countries where there is no reciprocal agreement, there is no way compensate for the amount of taxes already paid. Moreover, for countries in which Brazil has an agreement (see below) you can avoid double taxation, but since there is no compensation or restitution in the country of origin.
With Whom Brazil has Agreement Double Taxation
According to the IRS, the countries that have a reciprocal agreement with Brazil are: Argentina, Austria, Belgium, Canada, China, Chile, Korea, Denmark, Ecuador, Philippines, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Norway, Portugal, and Slovak Rep. Czech Rep., Sweden, and Germany, the United States and the United States (in the latter, the amount paid is compensable only where the federal tax).
ABOUT THE AUTHOR: Dr. Jose Mahmoud Ayoub Barros Lubbad
Post Graduate in Business Law from the Pontifical Catholic University of São Paulo - PUC / SP; Specialist in International Law, Foreign rights, Investments and Alfandegario - duties; and a Masters Degree in international law.
Copyright Lubbad Law Office
More information about Lubbad Law Office
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Initially we need to understand that in Brazil, by law – specifically the civil cod, there is a very well defined difference between residency and domicile. The concept creates rights and obligations that will characterize and define our understanding of a resident to a domiciled foreigner.
What is a residence? Reading in to the civil code, article 70, the natural person's residence and sole domicile is the place where a person has his permanent residency, location of living and resides in a permanent definitive manner.
However when talking about domicile, the law defines it as location, especially when looking in the possibility of a natural person, having several residences where, alternately, lives, or deems to be his home, thus considering all and any of them as his residency. That and it can be any place; it is also considered the persons domicile the location of his profession, the place where he exercises his job. By law, if the person exercises his profession in several places, each of which can be considered as domicile yet never residency. This is very clear in the civil code as we analyze article 73, there it clearly stipulates that the law considers domicile as home for the person who has not regular residency in a cretin location thus it is a place where legally he can be found and considered as located in independent of him physically benign there.
Versus home residence: the residence of residence differs because this is the place where the person lives. If you have multiple residences, where he lives alternately, any one will be considered home (CC, art. 71). While the essence of the home is purely legal, the residence is merely factual.
The IRS thru an internal executive instruction, NOT LAW, defines that a person is deemed as resident and domiciled at the same time in Brazil, country, when proven that he living in the country for a period exceeding 183 days, then, he is accountable to the IRS. Thus if having lived in the country for less than 180 days, proven, he is considered as domiciled only – so not obligated front of the IRS to declare his international assets.
The IRS, continues, thru the same internal executive instruction defining that a foreigner is obliged to declare his entire assets international as well as Brazilian when holding a permanent visa; thus, for the IRS a foreigner is deemed automatically domiciled as well as resident. For our understanding this is totally wrong and goes against the constitution, the law, as well as it goes in several times against it self – the IRS internal executive instruction – where in the text it goes in to contradiction crating conflicting concepts, contradictory rights and obligations.
I initiate the fact my analyses with the definition of what is the difference between permanent and temporary with permanent status visas. Thus, for a visa to be permanent it has to be one of the following visa base category:
- Fatherhood or Motherhood - family visa;
- Retirement visa;
- Matrimony visa; and
- Refuge Visa.
In the visas above mentioned – all considered as permanent visas since all have date to start yet with no date for end. Foreigner is obliged of declaring his taxes regarding profits gained or made out and inside the country.
Foreigner with permanent visa can request to have his name and CPF taken out of the IRS system when proving that he has the intention or is living more than 183 days outside of the country and has no intention of living in a permanent manner in the country for the next 2 years – thus having only domicile in the country.
For those who acquired temporary with permanent status visa – in our understanding they have just accoutered the right to be domiciled in the country only and nothing more. Thus, for a visa to be temporary with permanent status it has to be one of the following visa base category:
- Employment visa;
- Investor visa;
- Professor Visa;
- Scientists Visa;
- Archeology visa; and
- Religious visa.
In the visas above mentioned – all are considered as temporary visas since all start with date to end and all are conditioned to reasons of activation and validity. Foreigner is exempt of declaring his taxes regarding profits gained or made out of the country. Yet not to be understood as exempt from declaring and paying his taxes from profits realized inside the country.
Even thou considered temporary the visa has itself transformed in to status of permanent when foreigner reaches 184 days, consecutive or not, stay in Brazil, within a period of twelve months;
At the time of obtaining the temporary / permanent visa or employment contract when it had occurred before completing 184 days, consecutive or not, stay in Brazil, within a period of twelve months.
Since the person who arrived here with a permanent visa has no period of "grace", i.e. from the date of arrival is already a resident and is subject to the same laws and penalties applied to other Brazilian taxpayers.
Housing Defines Tax Treatment
The income received by foreign to complete the 183-day period, that is, a time when it is not considered a resident, are taxed only at source or in final form, as follows:
A) Rate of 25% collected directly from the source in the case of income from work, with or without employment, retirement, death pension or services;
B) Rate of 15% for other income which are not considered earned income.
Residents: How to Declare their IR
Foreigners who are residents in the country are obliged to declare and pay the same taxation as that required of Brazilian taxpayers. Thus, income derived from sources abroad is subject to mandatory monthly gathering income tax.
It should be noted that income derived from foreign sources by the holder of temporary visa without an employment contract are exempt from tax in the country and should not be taxed in a period of up to 183 days of stay in Brazil for a year.
When the foreigner is withdrawn from the country automatically lose residency status from the date of delivery of the Declaration of Final Departure of the country. In the declaration of IR last year, will have to submit a statement out on the income between the first January and the date on which the certificate is required for negative taxes.
Bi-taxation: How it Works
For foreigners who receive income from abroad, in countries where there is no reciprocal agreement, there is no way compensate for the amount of taxes already paid. Moreover, for countries in which Brazil has an agreement (see below) you can avoid double taxation, but since there is no compensation or restitution in the country of origin.
With Whom Brazil has Agreement Double Taxation
According to the IRS, the countries that have a reciprocal agreement with Brazil are: Argentina, Austria, Belgium, Canada, China, Chile, Korea, Denmark, Ecuador, Philippines, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Norway, Portugal, and Slovak Rep. Czech Rep., Sweden, and Germany, the United States and the United States (in the latter, the amount paid is compensable only where the federal tax).
ABOUT THE AUTHOR: Dr. Jose Mahmoud Ayoub Barros Lubbad
Post Graduate in Business Law from the Pontifical Catholic University of São Paulo - PUC / SP; Specialist in International Law, Foreign rights, Investments and Alfandegario - duties; and a Masters Degree in international law.
Copyright Lubbad Law Office
More information about Lubbad Law Office
View all articles published by Lubbad Law Office
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
