Living in Brazil but keeping an income source abroad

From  time to time, I have very interesting discussions with blog readers. Please check this one. You will learn a lot about Brazilian taxation and about international money transferences to Brazil. 

Dear Mr Adler,

With great interest have I heard about you.

As I have plans to immigrate to Brasil but keep working abroad i tried to find out about the brazilian tax system.

Since I will have an average income of above 10.000 USD a month I am curious to learn how much taxes I have to pay and if I can be hold reliable for direct taxes as well as indirect taxes?

Thank you for your time!

Sincere regards,

Daniel Dreiberg,

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Dear Daniel Dreiberg,

Thanks for the contact.

 Brazilian taxation would be hard on you: 27,5%.

 Maybe you should incorporate a company abroad, and receive dividends, in Brazil, from this company. This would lower the tax burden to about 15% (taxation over capital gains).

A company in Brazil, under the assumed profits system, would pay about 16-18% in taxes over the total revenues. 

This topic is complicated. Depending on the nature of your work/investments, the Brazilian government might think that the companies are not real, and thus apply the 27,5% taxation, as if it were personal income.

Regards,

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Dear Adler,

Thank you for the nice and helpful inputs in regards to set up an Offshore company.

Nevertheless I think we should compare the possibility to set up a Company in Brasil.

Although we have to pay 15% taxes in Brasil I am sure we are able to deduct several positions from the tax e.g. car, working office in the apartment, travel expenses, health insurance for my wife, as she will be employed as secretary, etc.

The advantage in that model is to have all in hand in Brasil and if necessary we can deal direct with the local authorities. As tax lawyer we would use your expertise.

The questions arising in founding a local Brazilian company are about the bank account.

Will the bank automatically change foreign currencies, e.g USD into local Reals?

Will the bank deduct a fee of 10 cents per USD?

How much of a charge are the transaction fees from Brasil to a foreign bank account e.g Germany?

 How often is a tax declaration necessary and how much is the tax adviser fee?

I believe to compare the advantages and disadvantages in both models we should find the solution which of the two possibilities might work best for me.

Thanks again for your advice

Sincere regards

Daniel

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Dear Daniel,

The 15% tax we talked about (actually, not 15%. A company would pay 16% to 18%) is a simplified rate, applied over the company's gross revenues, only when the company functions under the assumed profits system.

If you wish to keep a more detailed bookkeeping, we shall use the regular tax system. It is basically 34% over net profits, plus a 3,6% VAT over gross revenue. (The reality is far more complicated than that).

The bank will change USD to Reais automatically. A 0,38% tax is applicable over this operation.

The bank does not charge 0,10 cents per USD. But it will charge a conversion fee (sometimes 200 reais). Also, the bank uses the official exchange rate (there are some details about it that we must discuss).

You must hire an accountant, that will cost you about 350,00 per month. The accountant will take care of all tax assessments.

You must collect at least 60 USD every month as social security for the company director.

I hope this overview helps your decision.

Regards,

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See also:

International Bank Account Number (IBAN) - Sending money to Brazil

How to get cash back from Brazil to Europe

List of documents for setting up a company in Brazil 

Day trading and capital gain tax in Brazil

See also:

How to incorporate a Brazilian company through foreign direct investment

Visa options for investors in Brazil

10 tips for foreigners who wish to endeavor in joint-ventures in Brazil

Dear Adler,

I am planning to immigrate to Brazil.

Therefore, i am looking for an experienced lawyer in Minais Gerais who is able to assist me with obtaining a permanent investor visa and setting up a brazilian company.

I would like to ask you if you could have a look at a very brief description of my plans to determine whether my plans will allow me to be granted a permanent investor visa and also future extensions of my Visa.

Best regards,

Kurt Wagner

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Dear Mr. Kurt,

Thank you a lot for your contact.

The company usually takes 3 months to be running. The Visa sometimes takes up to 3months. So, you might consider come once as a Tourist, then go back to you country and only then return with the permanent Visa. 

Please send me more details on your business plan. I will be glad to review it. 

Warm regards, 

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Dear Adler,

Thank you for your reply.

I currently live in the Netherlands and work as a daytrader ( through my corporation) in stocks on the stock exchanges of the united states ( Nasdaq & Nyse).

 I work alone and I have no employees.

In Brazil these activities are taxed at 20% ( and I believe 15% if the position is held for more than 1 day) .

http://www.bmfbovespa.com.br/pt-br/regulacao/tributacao/pessoa-fisica/imposto-de-renda-day-trade/imposto-de-renda-day-trade.aspx?idioma=pt-br

I would be able to setup a corporation in Brazil ( to be allowed an investments visa) with 1 or 2 assistants, getting licenses, arranging accountants who are familiar with this matter… But this is would not be what I am looking for.

I would like to day trade alone as a “pessoa fisica” , pay the tax of 20%, no assistants…no license etc.

In this case, to be able to be granted residency in Brazil I will need to setup another small business.

Since I spend most of my time trading the stock market, I would like to invest in something with small risk and which doesn’t take a lot of time for me to manage… but which will allow me to be issued a permanent residency visa (and future extensions) and comply with Brazilian law.

A few examples:

1) I would buy a store for R$ 150,000 and I would hire 1 or 2 employees to sell food & drinks there (maybe only a R$ 20,000 investment)

2) I would buy a store for R$ 150,000 and I would hire 1 or 2 employees and setup an internet cafe (maybe a R$ 30,000 investment)

Would such kind of a simple business be granted a permanent residence visa + extensions, while there are only 1-2 employees and the risk is pretty low ( since I could always sell the store)?

Adler, I hope that you feel what I am aiming at. If you have any other suggestions for me which would also allow me to reach my goal, then I would really appreciate.

Thank you and best regards,

Kurt

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Dear Kurt, 

I understand what you say. 

Initially, I'd not recommend you to trade as a "pessoa física, since you would be subject to personal taxation as a Brazilian citizen. The total taxation might be higher than the 20% you mentioned.

You have two options, then:

Invest as a foreigner, through a special foreigners account, which would be managed by a Bank. You would have total liberty. The additional cost would be the bank commission. Nonetheless, you would, as a foreigner, be eligible to some tax incentives, such as near 0% taxation when investing in Government bonds. 

Or, your company in Brazil could operate in the stock market (even if the main business is a cafe). I must calculate the precise taxation, but it could be lower than 20%. 

Please give me your comments on those ideas. 

Warm regards, 

Adler

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Hi Adler,

I wasn’t aware of the fact that the total taxation could be higher if I would trade as a ‘pessoa física’.

Investing as a foreigner would probably not be an option for me, since I am doing a lot of transactions everyday through a special brokerage platform in the USA and trading to a special foreigner account would probably have less possibilities to trade and more restrictions.

Also, I wonder if it is possible to Invest as a foreigner, while being a resident in Brazil, because I am really planning to live in Brazil…

The other option sounds really appealing to me.

However, I hope it will not be a problem if the monthly profit of the café would be R$ 500, while the monthly profit of the stock market operations will be R$ 8000 or more…

Here in the Netherlands, the tax authorities would immediately force me to change the main business to stock market trading.

However, if it would be possible than I would be very interested.

Especially since you did mention that the rate would be lower than 20%.

While I thought that the corporate tax is approximately 15(tax)+10+9(social contributions)=34%.

I tried to find the exact percentage on a government website since I believe that the social contribution part is dependent on the sector, but i wasn't able to find the right sector….

Thank you and best regards,

Kurt

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Dear Kurt, 

Regarding your last comments: 

In fact, Brazil has a very simplified regimen for foreigners who wish to deal in Brazil. I understand that this would make you compromise some of your capital in Brazil for a while, though.

It is possible to invest as a foreigner while living in Brazil, as long as the money is originally registered as belonging to a company in Netherlands. If you live permanently in Brazil, you cannot trade as a foreigner forever.

On the main business topic: in Brazil the regulation is much simpler. You may either do the investments as a lateral activity of your firm or just add it to the company's activities.

Finally, the taxation rate would be 34%, but the calculation method makes the real taxation drop way below than that, since the taxable amount is not the gross income, but the adjusted income, after expenses, etc.  On the other hand, investments in the stock market may also be taxed on the source, that is, at a fixed rate, regardless of the profits of the company. It is a complicated issue.

Also, there is the assumed profit taxation system, which would allow you to pay taxes over your gross revenue, instead of over net profits. In many cases, this ends up saving money for the company. 

At this topic, I believe the best thing to do would be for you to look for a Legal Opinion covering all of your options, including tax calculations.

Warm regards, 

Adler

See also:

How to incorporate a Brazilian company through foreign direct investment

Visa options for investors in Brazil

10 tips for foreigners who wish to endeavor in joint-ventures in Brazil