Bill aims to tax profits from offshore companies

Proposal intends to tax earnings not credited to accounts of partners resident in Brazil

The Brazilian Chamber of Deputies’ Committee on Finance and Taxation has passed Bill No. 3,489/2021, which aims to end the deferred Individual Income Tax (IRPF) on overseas earnings from offshore companies based in tax-favored countries.

The bill may jeopardize investments of owners of such companies. Under the current rule, offshore partners (owners) who are resident in Brazil for tax purposes only incur Brazilian taxes once they withdraw funds from their offshores, whether directly (e.g., profit sharing) or indirectly (e.g., use of company funds to defray personal expenses).

If the bill is sanctioned, however, income tax will be levied on the profits recorded in the company's balance sheet, regardless of whether the money has been moved from the offshore in favor of its partners abroad or in Brazil. Hence, Brazilian tax authorities will collect monthly tax payments with graduated rates ranging from 0% to 27.5%.

The proposal seeks to increase Federal tax revenue by anticipating the collection of taxes levied on the profits of investors. Amounts will be determined upon the values recorded in the balance sheet and will be converted into Brazilian reais adjusted to the exchange rate set by the Central Bank in effect on the date of calculation.

It should be noted that there are still several legal gaps to be filled, such as defining the date on which the balance sheet should be assessed and the tax treatment on earnings dating back to income tax periods prior to the law’s entry into force, should it ever be signed into law.

The bill will be submitted for analysis by the Committee on Constitution and Justice and Citizenship. If passed, the project will be considered by the upper house, which will then send it to the Brazilian President for sanction, and only then will it enter into force.

Tax deferral for offshores

DPC has a team dedicated to assisting offshore owners and investors, ensuring compliance with Brazilian tax authorities. Contact our experts: dpc@dpc.com.br.