International Aspects of Brazilian Taxation

Brazil has been subject recently to a great deal of media exposure, focusing mostly on the inflows of foreign direct and indirect investment reaching the country. Having been one of the first countries to enter into recession during the recent global turmoil, it quickly returned to sustained economic growth. An increase in bank lending, the emergence of a large middle class and the future prospects of the commodities sector, all combine to make Brazil highly attractive to foreign investors.

However, the Brazilian taxation system is highly complex. Comprising three different levels and a myriad of different direct and indirect taxes and contributions and enforced by a vast bureaucracy, it is one of the main deterrents for foreign investors. The following paper tries to outline the international aspects of Brazilian taxation and serves as a brief introduction for those considering this vast market’s investment and trade opportunities. 

Non-resident Companies

The law does not provide for the concept of non-resident. In principle, all persons and entities that do not fall within the concept of resident are characterised as non-residents.

A non-resident is subject to income tax in Brazil only if that person derives income arising in Brazil and payable by Brazilian sources, derives capital gains with respect to the disposition of Brazilian-situs assets or rights, has a branch in Brazil or engages in activities in Brazil through a local agent.

In general, non-residents may engage in activities in Brazil through a branch upon the filing of a request with the Ministry of Commerce, Industry and Development. Branches are treated as corporate taxpayers. Apart from this rule, there is no definition of the term “permanent establishment” under Brazilian tax law.

However, there are two hypotheses addressed by Brazilian tax law under which a non-resident taxpayer may be deemed to have a corporate taxable unit in Brazil even without having formally created a branch in Brazil. These hypotheses are not expressly related to the characterisation of permanent establishments in Brazil, although the tax authorities could, in principle, rely on them to assess corporate income taxes on “taxable units” of non-residents. The first refers to non-residents that are subject to corporate income taxes on profits derived in Brazil from the sale of imported goods through mandatarios, comissarios, or a direct sale through local agents or representatives (a type of agency permanent establishment). The second hypothesis refers to the concept of a business or professional unit which corresponds to the situation in which a person conducts business activities without being formally registered with the competent authorities to do so (unincorporated business unit).


The majority of Brazilian income tax treaties generally follow the wording of Art. 7 of the OECD Model Treaty. Nonetheless, in some circumstances, tax authorities are reluctant to observe the dispositions of Art. 7 of the Brazilian income tax treaties, even where non-residents render services in Brazil without a permanent establishment.

Taxes on income and capital gains

A non-resident without a branch or agency is subject to Brazilian income tax withholding depending on the type of income derived. Where no special rate is provided, a general income tax withholding rate of 15% applies. Generally income paid to beneficiaries located in low-tax jurisdictions is subject to income tax withholding at the rate of 25%. 

Capital gains derived by non-residents are generally subject to income tax at the rate of 15% (a 25% rate applies if the beneficiary is resident in a low-tax jurisdiction), to be withheld at source by the Brazilian payer, unless specific rules apply. Capital gains realized outside of Brazil in transactions involving assets or rights located in Brazil are subject to Brazilian income tax even if the transaction involves only non-resident parties. In this case, the representative of the non-resident purchaser in Brazil registered as such with the Brazilian federal tax authorities is legally liable for the collection of the income tax on capital gains due from the non-resident. 

Gains derived by non-residents as a result of the sale of shares or other securities issued by Brazilian listed entities in the Brazilian stock exchange market or in the organized over-the-counter (OTC) market, registered under specific rules issued by the Central Bank of Brazil, are exempt from income tax withholding. This exemption applies to portfolio investments effected through the Brazilian Stock Exchange. An exemption also applies to investments made in local private equity funds, under specified conditions and rules issued by the Central Bank of Brazil.

Special mention should be made of the alterations to the Tax on Financial Transactions (IOF, or “Imposto sobre Operações Financeiras” in the original). All foreign investments into Brazilian market instruments are taxed at a rate of 6%, payable on the exchange between foreign currency and reais.

Taxes on capital

There is no net worth tax. Non-residents owning immovable property in Brazil are subject to real estate tax.


A non-resident with a branch formally registered in Brazil must self-assess its own income tax liability under the rules applicable to resident companies. Non-resident companies without a branch in Brazil, but deriving Brazilian-source income, are subject to income tax with-holding.

Non-residents owning assets and rights in Brazil (e.g. real estate, vehicles, share participations, bank accounts and investments in the Brazilian financial and capital markets) must register as taxpayers with the Brazilian federal tax authorities. Such non-residents must also appoint a local representative in Brazil and notify the federal tax authorities of the appointment.

Withholding taxes

Brazilian-source income derived by non-residents without a branch in Brazil is generally subject to a final withholding tax levied on the gross amount.

Dividends As of 1996

As of 1996, dividends paid by resident companies out of after-tax profits to non-resident shareholders are exempt from income tax.


Interest, commissions and other financial expenses incurred under cross-border loans paid to non-residents are subject to a 15% withholding tax. A 25% rate generally applies to beneficiaries located in low-tax jurisdictions. There are some exemptions and zero-percent income tax withholding rates established by domestic law, which are mainly related to export loans granted by export credit agencies, export financing, as well as to loans granted by the International Finance Corporation or by governmental agencies and destined to the acquisition of equipment.


The withholding income tax rate on royalty payments to non-residents is 15% (a 25% rate applies to royalty payments made in favour of beneficiaries located in low-tax jurisdictions). This rate also applies to the payment of fees as consideration for the transfer of technology and for technical, administrative and scientific assistance.  Royalties paid by resident entities to non-residents as consideration for the transfer of technology, trademarks and patents, and for the supply of technical, administrative or scientific assistance, are also subject to the Contribution For Intervention In The Economic Domain (CIDE), which is a contribution payable by the Brazilian legal entity paying this type of income to a non-resident. This contribution is not withheld at source from the payment; rather its burden is incurred and borne by the Brazilian paying source. The CIDE contribution is not imposed on cross-border payments of software licence, except for payments involving acquisition of software rights (transfer of technology).

Value Added Taxes – Taxes On Sales

Brazil has more than one value added tax. The tax on manufactured products (IPI) is levied at a federal level on every stage of the producing process and on import transactions. In addition, the tax on the distribution of goods, interstate and intermunicipal transportation, and on communication (ICMS) is levied at the state level.

Tax On The Distribution Of Goods, Interstate And Inter-Municipal Transportation, And On Communication (ICMS)

The tax on the distribution of goods, interstate and inter-municipal transportation, and on communication services (ICMS) is a type of value-added tax and is levied on transactions involving the distribution of goods, the rendering of any type of inter-municipal or interstate transport services and communication services. The imposition of ICMS also respects the non-cumulative principle.

ICMS is also levied on each and every transaction related to the import of goods or services, including, in the case of goods, those acquired for the importer’s fixed assets (e.g. machinery and equipment). In such case, the tax paid by the importer may be offset against the tax due on future transactions or rendering of service subject to ICMS. There are special rules regarding the appropriation of ICMS credits with regard to purchases of products destined to the fixed assets of a taxpayer.