Menu open icon Search icon Close icon facebook twitter youtube instagram linkedin Butterly graphic Facebook share icon LinkedIn share icon Email share icon Twitter share icon Download Icon

Changes to Brazilian Taxation of Foreign Entities

The Brazilian Tax Bill (14.754/2023) was recently approved by Congress and confirmed by the President. The bill will introduce changes to the taxation of investments made abroad by individual Brazilian taxpayers. The new regime will come into force on 1 January 2024.

The following are the main changes included in the bill:

ALL CONTROLLED FOREIGN ENTITIES (CFES)

  • CFEs that generate passive income exceeding 40% of their total income will be taxed at a flat rate of 15% annually whether or not profits are distributed
  • Profits must be determined on an annual balance sheet prepared in accordance with Brazilian commercial accounting standards
  • Under the new regime, the term ‘entity’ will include private investment companies, investment funds, segregated portfolio companies, foundations, trusts and other non-incorporated entities
  • For companies, with segregated unit classes or shares, each class will be considered a separate entity
  • There is an option to update the value of assets and rights abroad reported in the income tax return, to the market value on December 31 2023 at the definitive tax rate of 8%, payable by May 2024
  • There is an option for an entity to apply for transparent tax treatment in Brazil. However this option cannot be reversed at a later date

TRUSTS

  • Trusts will be considered transparent for fiscal purposes
  • For revocable trusts, the settlor will be the responsible for all reporting requirements and for the payment of taxes
  • For irrevocable trusts, the beneficiaries will be responsible for all reporting requirements and for the payment of taxes. In the case where the beneficiaries are not yet entitled to receive distributions, the responsibility with fall to the trustee
  • Within 180 days from the introduction of the new regime, trust deeds must be amended to include provision that obliges the trustee to comply with the new tax regime
  • The settlor or beneficiary must request the trustee to provide the financial resources and information necessary to facilitate the payment of taxes and compliance with other tax obligations

In addition to Bill 14.754/23, there is a second bill of law (PEC45) due to come into force early in 2024 which will introduce a new progressive taxation on inheritance and donations (ITCMD), as well as allowing taxation on donations received abroad. Currently Brazilian states can levy taxation charges of up to 8%. Some currently charge ITCMD at a fixed rate, such as Sao Paulo where there is a fixed rate of 4%; others have already introduced a progressive tax rate regime. Under PEC45 all states would need to have a progressive ITCMD tax regime of between 2% and 8%.

IMPORTANT INFORMATION: The content of this article is intended for general information purposes only. It does not constitute, should not be interpreted as constituting and cannot be relied upon as providing (i) legal, investment or tax advice or any other form of professional advice, (ii) an offer to sell, a solicitation of an offer to buy, or a recommendation of any service or any other product or service regardless of whether such security, product or service is referenced in this article. JTC has sought to ensure that the information provided in the article is adequate, accurate and complete as at the time of publication but offers no assertion or warranty as to its adequacy, accuracy or completeness either at the time of publication or thereafter. No responsibility or liability will be accepted for any losses resulting from reliance placed upon the content of this article.

Submit an Enquiry

Please use this short form to help us respond to your enquiry as efficiently as possible.