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Dividends paid by Brazilian companies on profits generated after
1st January 1996 are not subject to withholding tax. The law requires
an annual payment of dividends with reference to the minimum portion
established in the articles of incorporation, considering the minimum
limit of 25% of the net profit of the year.
There are no limitations on payment of interest
to foreign lenders, related or not, on the extent that the contact
is made under market conditions. Such interest is fully deductible
without limitation.
Royalty payments are authorised only after the
underlying intangible is registered in both countries. Deductibility
of royalties and fees is limited up to 5% of the net receipts from
the product manufactured or sold. Royalties paid are subject to
a 15% withholding tax.
Payments of any kind made to tax havens are subject
to withholding tax at a rate of 25%.
Investment made by non-residents in Brazil may
become interesting provided that that there is no withholding tax
applicable to payment of dividends. It is important to note that
if such payment is made to tax havens the withholding tax at the
highest rate of 25% will be applicable. This rate applies to any
payment made to low-tax jurisdictions. However, using the extensive
network of Brazilian tax treaties it is still possible to reduce
substantially this tax rate.
Capitalisation of a Brazilian company through shareholders’
loan may also have some tax advantages. As it is mentioned above,
there is no limitation for the amount of loans and interest paid.
The latter is completely deductible.
In addition, Brazil applies same withholding tax
whether to treaty or non-treaty countries (exception for Japan).
However, using some double tax treaties signed by Brazil one can
avoid possible income taxation in the recipient’s hands.
Tax Treaties
Brazil has concluded double tax treaties with the following countries:
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 |
| |
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|
|
|
|
|
|
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Argentina |
|
0 |
15
(c) |
15 |
|
|
Austria |
|
0 |
15
(c) |
15
(b) |
|
|
Belgium |
|
0 |
15
(a) (c) |
15
(b) |
|
|
Canada |
|
0 |
15
(a) (c) |
15 |
|
|
Chile
(K) |
|
0 |
15 |
15 |
|
|
China |
|
0 |
15
(c) |
15 |
|
|
Czechoslovakia
(g) |
|
0 |
15
(c) (e) |
15 |
|
|
Denmark |
|
0 |
15
(c) |
15 |
|
|
Ecuador |
|
0 |
15
(c) |
15 |
|
|
Finland |
|
0 |
15
(c) |
15
(b) |
|
|
France |
|
0 |
15
(a) (c) |
15
(b) |
|
|
Germany |
|
0 |
15
(a) (c) |
15 |
|
|
Hungary |
|
0 |
15
(c) (f) |
15 |
|
|
India |
|
0 |
15
(c) |
15 |
|
|
Israel
(i) |
|
0 |
15
(c) |
15
(h) |
|
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Italy |
|
0 |
15
(c) |
15 |
|
|
Japan |
|
0 |
12,5
(c) |
12,5
(d) |
|
|
Korea |
|
0 |
15 |
15 |
|
|
Luxembourg |
|
0 |
15
(a) (c) |
15 |
|
|
Netherlands |
|
0 |
15
(a) (c) |
15 |
|
|
Norway |
|
0 |
15
(c) |
15 |
|
|
Paraguay
(i) |
|
0 |
15
(c) |
15 |
|
|
Philippines |
|
0 |
15
(c) |
15 |
|
|
Portugal |
|
0 |
15
(c) |
15 |
|
|
Spain |
|
0 |
15
(c) (e) |
15
(b) |
|
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Sweden |
|
0 |
15
(c) |
15 |
|
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Ukraine
(i) |
|
0 |
15
(c) |
15 |
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Non
Treaty Countries |
|
0 |
15 |
15 |
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(a) The withholding rate is 10% for interest on
certain bank loans with a minimum term of seven years.
(b) The withholding rate is 10% for royalties for
copyrights of literary, artistic or scientific works, or for films
or videotapes for televisions or radio broadcasting produced by
a resident of a contracting state.
(c) Interest paid to the government of the other
contracting state, a political sub-division thereof or any agency
(including a financial institution) wholly owned by that government
or political subdivision thereof is exempt from tax.
(d) The withholding rate is 15% for royalties arising
from copyrights of cinematographic films and films or tapes for
radio or television broadcasting.
(e) The withholding rate is 10% for interest on
certain long-term (at least 10 years) bank loans.
(f) The withholding rate is 10% for interest on
certain long-term (at least eight years) bank loans.
(g) Brazil is honouring the Czechoslavakia treaty
with respect to the Czech and Slovak Republics.
(h) This rate applies to royalties related to the
use, or the right to use, trademarks. For other royalties, the rate
is 10%.
(i) This treaty has been signed, but it has not
yet been ratified.
(j) The tax treaties do not apply to the CIDE.
(k) This treaty is effective from 3 October 2003.
Salient Features
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Corporate
Income Tax |
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The
actual income tax rate is 15%. A 10% surtax applies to profit
exceeding R$ 240,000 ($US 84,000). |
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Dividends
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Dividends
paid out of earned income are not subject to withholding tax. |
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Interest
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Interest
for most forms of loan facilities is generally deductible
for Brazilian tax purposes. Interest payments to non residents
are generally subject to withholding tax at the rate of 15%
(25% if paid to blacklisted tax haven jurisdictions). |
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Royalties
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Same
as interest payments, royalties are taxed at the rate of 15%. |
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Loss
Relief |
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Losses
may be carried forward indefinitely but may be offset only
against up to 30% of the taxable income of each period. |
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Case Studies
Offshore Investing into Brazil
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