BRAZIL INCOME TAX INFORMATION

[trilingual]

Before making a big mistake, I invested in a consultation with Ernst & Young (Brazil) to find out, once and for all, whether my U.S. pension would be taxable in Brazil were I to become a permanent resident. Ernst & Young are experts in expatriate taxation rules, and provide tax services to many foreigners working and living in Brazil.

 

The short answer about whether my pension would be taxable in Brazil is "yes."

 

As I feared, Brazil levies income tax on the world-wide income of Brazilian residents. That includes pension income. The only exception would be for citizens of countries which have tax treaties with Brazil (like Canada) that have provisions specifically covering public pensions or social security payments. Brazil DOES NOT have tax treaties with either the U.S. or the U.K. The only understanding existing between Brazil and those two countries is an agreement to eliminate double taxation. That means that the tax paid in one country can be deducted or credited in the other. From a practical standpoint, it means that Americans who live in Brazil will have to pay both U.S. and Brazilian tax. First you pay the American tax on your U.S. income, then you pay Brazil the difference between what you paid in the U.S. and what you owe in Brazil. In most cases, I think, Brazilian tax will be considerably more than what you pay in the U.S., because there are fewer allowable deductions.

 

Using myself as an example, here's what would happen if I became a Brazilian resident (currency conversions made at US$1 = R$2.98):

 

I receive a taxable federal pension of US$40,764 (R$130,416). My U.S. income tax on that, as a single taxpayer using the standard deduction and personal exemption, is US$5054 (R$15,061). In Brazil, that level of income puts me in the highest tax bracket of 27.5%. My Brazilian tax, therefore, would be R$35,865. There is a standard deduction of R$5,077, so my actual tax would be R$30,788. From that I could credit the R$15,061 I paid in U.S. tax. That leaves a difference of R$15,727 (or more than US$5,000) to pay Brazil. As you can see, this means that I would pay twice as much in taxes if I were to become a resident of Brazil. Needless to say, for US$5,000 I can make a lot of trips out of Brazil to maintain my status as a tourist!!! You can do the math yourself, using your own numbers, to see what you'd have to pay in Brazil if you become a resdent.

 

The only way to avoid Brazilian income tax legally seems to be an exemption for persons with serious health conditions, like severe heart disease, AIDS, Parkinson's, etc. There is no tax on the pension income of such persons. Other income would still be taxable. This would require a certificate from a public M.D. If the condition isn't chronic, you'd have to be recertified periodically.

 

If you become a resident, there is a fair amount of tax paper work and you'll need an expert accountant to assist you. Brazil collects its taxes on a monthly "pay-as-you-go" system, which means that each month you must pay tax on your income in the previous month. In addition, you will have to file an annual return and a declaration listing all your property (including bank accounts, investments, foreign real estate, etc.). So, as you can see, there is considerable bureaucracy.

 

Finally, I've discovered the reason for the 180-day per calendar year limit on stays by tourists: regardless of the kind of visa you have, if you're in Brazil for more than 180 days (not necessarily consecutive days) during the year you're considered a de facto resident and subject to taxes!!!

 

Tax evasion or fraud aren't recommended if you become a resident. Brazil is getting quite sophisticated in its tax collection practices and it's quite easy to get caught. Higher income taxpayers are under special scrutiny, and that would include anyone with income from developed nations. You don't want to find yourself suddenly caught in the net owing years of back taxes, penalties and staggering interest on all of that! Not to mention possible criminal liabilities.

 

As you can see, you need to think carefully about whether it's worth the extra taxes to obtain Brazilian residency (including checking with your own country's tax authority to see if there is a treaty that might benefit you).

 

Ernst & Young isn't cheap, so for once I would welcome some contributions to cover the cost of the consultation (whose benefits you are now enjoying). If four or five of you who are here and considering Brazilian residence each kick in R$100, that'll make my out-of-pocket expense less painful!

 

PLEASE POST COMMENTS OR OTHER QUESTIONS IN THE MAIN ESCORTS SOUTH BOARD! Only post specific Brazilian tax facts here in this FAQ thread. Thanks!

[trilingual]

Of course, each person's tax situation is different. Use the scheme described above to figure out your own income tax in your home country and your tax in Brazil. If you have a high income and/or are in a higher income bracket than Brazil's 27.5%, it's possible that tax in your home country is more than in Brazil. If that's the case, you won't owe any additional tax in Brazil.

 

BTW, the tax brackets in Brazil may change by next year. The Lula government is talking about increasing the number of brackets from the current 3 (which haven't been adjusted for inflation in quite a while) to as many as 5 to help ease the burden on the increasingly crushed middle class. (People who earn less than R$12,000 a year don't pay tax in Brazil.) Of course, they aren't going to want to lose any revenue in the process, so the tax on higher incomes will inevitably increase. No word yet, though, on what the new tax brackets actually will look like.