How foreign investments are taxed — the big picture

Read this first. Brazilian tax rules for foreign income and assets are detailed and they change — recent years have seen significant reform of how offshore income is treated. Everything below describes the structure you need to understand, not a current rate sheet. Always confirm the rules in force for the year you are filing, and consider hiring an accountant familiar with foreign investments.

Two things get taxed

As a Brazilian tax resident, you are generally taxed on your worldwide income — including what your foreign investments earn. Broadly, two events create tax:

• Income received — dividends, interest and similar distributions paid by foreign assets.
• Capital gains — the profit when you sell a foreign asset for more than you paid, measured appropriately.

Two separate obligations

It is essential to separate them:

1. Paying the tax that is due on income and gains (the mechanisms differ — carnê-leão and ganho de capital, covered next).
2. Declaring the assets you hold abroad on your annual income-tax return, and in some cases reporting them to the central bank — even when no tax is due.

You can owe a reporting obligation without owing any tax, and forgetting the declaration is itself a problem. The following lessons walk through each piece, but the foundation is this: foreign investing brings Brazilian tax and reporting duties that are yours to satisfy.