Whether to File Exit of Tax Residency from Brazil
The number of Brazilian citizens that are moving abroad has increased considerably in recent years. The U.S., with its greater quality of life, economic stability, and business and professional opportunities, is one of the most popular destinations that many former Brazilians are choosing to call home.
There are several implications involved in the decision to relocate, including the tax consequences. Brazil exercises its jurisdiction for tax purposes primarily based on nationality, which means that its citizens and companies incorporated within the country are subject to taxation based on their worldwide income, regardless of where it is earned.
As such, if a Brazilian tax resident leaves the country, gets a job, and starts earning income abroad, he or she must report the income and pay taxes on it to the Brazilian Revenue Service (“RFB”). If the current country of residence does not have a tax treaty with Brazil to avoid double taxation, the earned income may be taxed in both countries.
One way to mitigate the double taxation is to inform the RFB that one is no longer a tax resident in Brazil. By doing so, the Brazilian individual will no longer be required to report and pay taxes on his or her income earned abroad.
As established by Brazilian Law[1], an individual who ceases to reside permanently in Brazil must transmit to the RFB both the Communication (“CSDP”) and the Declaration of Definitive Exit of the country (“DSDP”), which will state his or her residence for tax purpose upon leaving Brazil.
However, if the individual does not file the CSDP, he or she is still considered a tax resident of Brazil for the first 12 months of absence.[2]
After the 12-month absence, the individual will no longer be considered a Brazilian tax resident. Nonetheless, without filing the DSDP, uncertainty will remain as to whether the RFB expects you to file a tax return to report your worldwide income and assets.
Failing to file the DSDP will incur a penalty of R$ 165,74. Not only that, if there is any tax due, there will be a fine incurred of 1% per month, up to 20% of the amount owed.
To prevent penalties and fines from the RFB due to oversight of one’s legal obligation to report and pay taxes on worldwide income, it is likely prudent in most situations to file the DSDP.
Nevertheless, with regards to territorial authority, income earned within Brazil is subject to taxation in Brazil. Thus, one must formally communicate his or her non-resident status to all payors of income sources in Brazil, so that future taxes are incurred in accordance with the applicable law, i.e. applicable to a taxpayer resident abroad.
In some circumstances, such as where the majority of an individual's income remains from Brazilian sources, or the person visits Brazil a certain amount of days in a 12-month period, it might not be beneficial to file the DSDP. Proper analysis must be performed to determine the correct conclusion, taking into account the distinct ways that a Brazil non-resident is taxed differently from a resident.
Every situation is unique and should be evaluated individually. Barbosa Legal has a team of experienced attorneys, both Brazilian and U.S., specializing in international taxation who can properly analyze the facts of your particular situation and provide advice customized to your needs.
[1] Normative Instruction SRF 208/2002
[2] Article 2o, Normative Instruction 208/2002