Publication of Law No. 14.754/2023, which regulates the taxation of investments in investment funds in Brazil and offshore companies

On December 13, 2023, Law 14.754/2023 was enacted, which provides for the taxation of investments in investment funds in Brazil and of income earned by individuals resident in Brazil from financial investments, controlled entities and trusts abroad.

Exclusive Funds

Exclusive funds were only taxed when the investment was redeemed. With the new law, taxation will take place every six months, following the rule known as “come-cotas” for other funds. The applicable rate will vary according to the investment period, i.e. 15% for long-term funds and 20% for short-term funds.

Trust

Previously, individuals resident in Brazil were subject to a 15% income tax rate on capital gains from funds invested in offshore entities. However, income tax was only due when the funds were sent to Brazil. With the advent of the new law, the rate of 15% has been maintained, but payment will be the responsibility of the beneficiary in their Annual Income Tax Return (DAA).

Controlled Entities

The profits of entities controlled by individuals resident in the country and located in tax havens (countries with favorable taxation) or entities abroad with their own active income of less than 60% of total income (i.e. more than 40% of their profits come from royalties, interest, dividends, shareholdings, rents, capital gains, financial investments or other passive income) will be taxed at a rate of 15% (fifteen percent) on the annual portion of income, in which case no deduction will be applied to the calculation base.

Individuals

Individuals resident in Brazil must declare income from capital invested abroad, in the form of financial investments and profits and dividends from controlled entities, separately from other income and capital gains in the Annual Adjustment Statement (DAA). Tax must be calculated on the annual portion of the individual taxpayer’s income at a rate of 15% (fifteen percent), in which case no deduction from the calculation base will be applied.

As a transitional rule, income earned up to December 31, 2023 on investments in investment funds that were not subject until 2023 to periodic taxation in May and November of each year, and which will be subject to periodic taxation from 2024 onwards, may have the rate reduced to 8% if the individual taxpayer resident in the country chooses to pay income tax on income from investments in investment funds in two (2) stages:

I – in the first, payment of tax on income calculated up to November 30, 2023; and

II – on the second, payment of tax on income calculated from December 1, 2023 to December 31, 2023. Capital gains realized by individuals resident in the country on the sale, write-off or liquidation of assets and rights located abroad that do not constitute financial investments abroad under the terms of the Law remain subject to the specific taxation rules laid down for capital gains.

Exchange variation

The exchange variation of foreign currency in kind will not be subject to personal income tax up to the limit of currency disposal in the calendar year equivalent to US$5,000.00 (five thousand US dollars). However, if the foreign exchange gains are higher than the above limit, they will be subject to the same tax rules as capital gains.

As a general rule, the price to be used to convert foreign currency amounts into national currency will be the closing price of the foreign currency published for sale by the Central Bank of Brazil on the date of the taxable event.

The exchange variation of deposits in a current account or debit or credit card abroad will not be subject to personal income tax, provided that the deposits are not remunerated and are held in a financial institution abroad that is recognized and authorized to operate by the monetary authority of the country in which it is located.

The new tax rules come into force on 01.01.2024 .

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