In an effort to increase funding for a variety of national projects, there will be an increase in Brazilian income tax. Beginning January 2024, Brazil residents must declare their DAA or annual adjustment return separate from capital gains and other income.
Luiz Inacio Lula Da Silva, the Brazilian President, published an executive statement stating that the government aimed to increase revenue with a capital income tax on financial investments abroad for those living in Brazil.
When Will This Take Effect?
The increase will cover income earned from January 1, 2024, which will be considered for tax purposes. There will be a vote in Congress in four months to put this law into effect. The text states that income from financial investments abroad is taxed at maturity or sale of assets, and dividends and profits will be taxed at the end of the year. This will include trust assets as well.
How Will The Income Tax Be Determined?
Income up to 6,000 BRL is tax-exempt, while income above this but below 50,000 BRL is taxed at 15%. Those with income above 50,000 BRL can expect to be taxed at 22.5%.
The Finance Ministry released a statement that says they expect to collect about 3.2 billion reais, the equivalent of $641 million for 2023, and 3.6 billion reais in 2024, with an increase to 6.7 reais in 2025. The ruling also suggests updating rights and assets abroad to proper market value, and the acquisition difference being taxed at a rate of 10% to be paid on Nov. 30.
This was not mentioned during the Labor Day Speech, where the President pledged an introduction of minimum wage increases and low-income earner tax exemptions. The government has pledged its desire to achieve balance by taxing those who should be paying but currently aren’t.
Summary of the Income Tax Expected
For income from financial investments abroad, it should be noted that income up to 6,000 BRL will receive 0% tax, while the highest tax rate is charged to those earning more than 15,000 BRL.
Income is to be reported to DIRPF for income tax purposes upon availability, i.e., liquidation, maturity, or amortization.
Trusts abroad and foreign subsidiaries are also subject to this income tax. The revenue is expected to fund projects such as infrastructure and other internal aid that is needed. These taxes will be levied for all residents when they file relevant tax returns. It should be noted that Brazil does not have regional or state income taxes.
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