brazil – tax & legal 2010/2011 snapshot william heuseler
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Brazil – Tax & Legal 2010/2011 Snapshot William Heuseler. March 2011. Slide title: Trebuchet normal 20, dark gray Slide font: Trebuchet normal 20, black Bullets color: orange Leave at least 1 line between each topic. Brazil Residence Concept. Slide Agenda. Concept of Residence. - PowerPoint PPT PresentationTRANSCRIPT
Brazil – Tax & Legal 2010/2011 SnapshotWilliam Heuseler
March 2011
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Brazil Residence Concept
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Concept of Residence
Individual
Who comes to Brazil on a long term basis;
Holder of a permanent visa as of arrival date or granting of
such visa;
Holder of a temporary visa who:
• Arrives in Brazil to work under an employment contract as of
arrival date or signature of the contract;
• Stays in Brazil for more than 183 days, consecutive or not, over
a twelve-month period counting from the date of any arrival, as
of the day following the completion of the 183 days.
New Regulation – Law 12.249/10 – art. 27
• Distintiction of “Vital Center” or 183 days rule
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Brazil Tax System – Individuals
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Income Tax
Individual – Worldwide taxation
Annual income tax return;
Investments abroad:
• Capital gains (investments directly detained by individual) –
Fixed rate (15%);
• Income – flat tax rates (progressive rates from Zero up to 27,5%
• Zero, 7.5%, 15%, 22.5% and 27.5%
Investments on Domestic financial and capital markets –
Exclusive Taxation (22,5% to 15%)
New Regulation
6.38% IOF on Credit Card expenses done abroad
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Taxation – Triggering event
Individuals:
• Cash Basis – upon availability.
Legal entities:
• General rule- accrual basis: accounting of revenues upon
unconditional right to such revenues (annually);
• Possibility to adopt “Cash Basis” system – upon availability
(Presumed Profits System).
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Inbound Investments – General Concepts
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Inbound Investment
Law 4131 – Direct Investment
• Foreign investment must be registered with the Central Bank of
Brazil – BACEN. That entitles the foreign investor to repatriate
capital and remit dividend payments.
Resolution No. 2.689 – Financial Market Access
• Special tax regime for non-resident investors in the Brazilian
financial and/or capital market
IOF New Rules
6% IOF upon FX transaction (inbound) for fixed interest market
2% upon FX transaction (inbound) for stock market investments
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Investing directly in Brazil“2689 Account”
Resolution 2.689 was issued by the National Monetary Council in
January 2000
It allows nonresidents to invest in the Brazilian capital and financial
markets
Establishes that foreign investors must have a local custodian, legal
and a tax representative in Brazil and regulates the conditions for
operating the account in Brazil
Assets are always registered under the final investor’s name
A Financial Institutional will provide the full service:
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Investing directly in Brazil“2689 Account”
Investments Allowed: Assets traded in the stock exchange (BOVESPA and BM&F): Stocks and
Derivatives Markets• Equities• Commodities (gold, agribusiness)• Forwards (US Dollar, Gold)• Futures (Equities, DI, Ibovespa Index, US Dollar/ EURO, Gold, IPC-
A/IGP-M)• Options (DI, Ibovespa Index)• Indexes (Bovespa Index, Brazil 50 Index – IbrX 50, Brazil Index -
IbrX)• Assets traded in the OTC market, but registered in depository
systems recognized by the CVM and BCB, such as CETIP and SELIC (currently Itaú works only with SELIC)
Investment funds that accept 2.689 investors dully registered at the CVM and with the quotas registered at CETIP• Funds offered by Itaú Asset Management• Third Party Funds
*CVM (Brazilian Securities Exchange Commission) **Special System for Liquidation and Custody (SELIC); Central Office for Custody and
Financial Liquidation of Private Bonds (CETIP)
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Investing directly in Brazil“2689 Account” - Taxation
http://bestbrazil.org.br/pages/publications/091117_foreign_investors_guide_2009.pdf
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Outbound Investments
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Individual Investing Abroad
Personal Account
Taxation• Capital gain
tax on withdraws from the investment – 15% on the gain
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
Taxation• Capital gain
tax on withdraws from the investment – 15% on the gain
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
PIC
Taxation• 15% over capital
gain; and• 0% to 27,5%
over dividends, when they are distributed to the individual
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
Taxation• 15% over capital
gain; and• 0% to 27,5%
over dividends, when they are distributed to the individual
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
Fund
Personal Account
Taxation• Capital gain
tax on withdraws from the investment – 15% on the gain
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
Taxation• Capital gain
tax on withdraws from the investment – 15% on the gain
• F/X variation – periodical impact (when income and interests are deposited on the individual’s account)
Abroad
Brazil
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Declaration if Investment Abroad Central Bank
Individuals and Legal entities
Legal scenario:• MP No. 2224/01 + Central Bank’s normative ruling – annual statement.
Obligation to declare:• Residents in Brazil (individuals or legal entities).
Scope:• Assets in rights held abroad amounting US$ 100,000.00 or more (on
December 31st).• Market Value
Penalties:• Lack of declaration, providing false, incorrect or incomplete information,
or failing to meet deadline – fine up to R$250,000.00.
Trusts:• No specific requirements in the legislation nor in the regulations
regarding the declaration of trusts.• Central Bank’s Q&A.
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Law 7.492/86White Collar Law: crimes against the national financial system
Art. 22 to perform non-authorized foreign exchange transaction, with the intent of transferring money out of the country:
Penalty – Imprisonment - 2 to 6 years + fines
§ 1. the same penalty will be applied to those who, with any objective, promotes, without legal authorization, the exit of currency or values out of the country, or keep offshore deposits which are not declared to the competent authorities (this crime does not lapse/ expire because it is committed every year that the money is not declared)
Investments Abroad
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Estate Planning – International
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Trust / Foundation
Concept
Brazilian law does not contemplate trusts/foundations
No domestic rules on the taxation of trusts/foundations and their
settlors/founders and beneficiaries
Introductory Law to the Civil Code - Article 7 – the law where the party
is domiciled shall govern its legal capacity
Trust - it is likely that the Brazilian tax authorities would treat it as a
non-resident legal entity
Foundation – legal entity
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Main issues
When does occur transfer of assets / Funding
• Occurs by the actual transfer of possession
• Some assets require specific registration with proper authorities (e.g.
real estate, interest equity, vehicles)
• No provision preventing/limiting an offshore trust/foundation to hold
assets in Brazil
Nature of transfer of assets to the trust
• Revocable trust (fiduciary transfer not typified under Brazilian civil
law)
• Taxation on transfer
• Settlor may keep the basis for the assets in his income tax return
• Irrevocable trust or foundation (donation or gift)
• Taxation on transfer: ITCMD
• Settlor/Founder does not keep basis for the assets in his income
tax return
Trust / Foundation
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Main issues
Forced heirship rules
• Limitations to the possibility of constituting trusts – marital regime
and forced heirship
Distribution of assets to the beneficiaries
• Real estate: subject to ITBI and generally characterize ordinary
income (27.5% income tax)
• Other types of income (ex. Dividends): characterize ordinary income
• Donation of real estate: subject to ITCMD (State Level Tax – 0% to
8%)
• Life insurance proceeds distributed: non-taxable income (Brazilian
legislation)
Trust / Foundation
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Trust/Foundation
$
Corporate Settlor
Trustee/
$
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Local Legislation and New Trends
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International Life Insurance
Complementary Law nº 126/07 establishes several additional restrictions for the acquisition of international insurance by Brazilian residents
According to Law nº 126/07, Brazilian residents must contract only onshore life insurances, except in the following situations:
•The specific risk is not covered by any type of insurance available in Brazil
•Insurance was contracted while the individual was not resident in Brazil and is valid only until the individual is an offshore resident
•10 quotes rule
•International treaties duly executed by the Brazilian Congress allowing the specific insurance
•Insurance contracted prior to the enforcement of Law nº 126/07
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Marriage Property Regime: Mandatory Separation
Current: Marriage regime imposed for individuals older than 60
years
Trend: Possible amendment, since some consider it is a
discriminatory rule
Main Bills (in course at the House of Representatives):
• Bill No. 108/2007 (Federal Representative Solange
Amaral): Mandatory separation - 70 years of age
• Bill No. 2285/07 (Families Statute, Federal
Representative Sérgio Barradas Carneiro): Suppresses the
mandatory regime, free stipulation by the spouses
Family and Successions
Source: Choaib, Paiva & Justo
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Same Sex Union
Current: Implied partnership rather than family entity. Omission in
legislation. Property acquired through mutual effort (Digest No. 380 of
the STF – Federal Supreme Court) Dependant on healthcare plan. Death
allowance (Normative Ruling INSS No. 25/2000)
Trend: Family entity (stable union). Dignity, Liberty and Isonomy
• STJ – Superior Court of Justice (2008) juridical possibility of
discussing action on union of people of the same sex
• Law No. 11340/06 family: intimate affective relation not dependant
on sexual orientation; and
• Reality of facts: 17.9 million homosexuals in Brazil (ABGLT, 2008).
IBGE 2010.
• Bill No. 1151/95 (Federal Representative Marta Suplicy) in
course at the House of Representatives
• Civil Partnership: inheritance, dependence before the Tax Authority
Family and Successions
Source: Choaib, Paiva & Justo
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Concubinage
Current: Implied partnership rather than family entity
• Partition of property acquired through mutual effort (Digest No. 380
– STF)
• Forbidden: donation to the concubine and appointment as heir or
legatee
• Innovative Decisions grant rights to concubine (minority).
Dignity, Isonomy, Affection and Reasonability
– Indemnification for house-keeping services (STJ, 2007);
– Division of the social security pension between widow and
concubine (STJ – 2005);
– Double union – property acquired in the course of the union are
distributed through wife, companion and the deceased (TJRS, 2007).
STF still denies rights to the concubine: impossibility of
apportionment of the social security allowance, since
concubinage does not have legal protection (STJ, 2008)
Family and Successions
Source: Choaib, Paiva & Justo
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Paternity
Law No. 12.004, of July 29, 2009, on paternity investigation.
Paternity presumed upon refusal of the supposed father to have
his genetic code tested – DNA test, to be analyzed along with the
context of proof.
Source: Choaib, Paiva & Justo
Family and Successions
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