Federal Revenue Service issues rules on taxation of investments abroad

Regulation governs taxation of income from foreign assets and offers the option to adjust the value of assets and rights held abroad 

On March 13, the Federal Revenue Service issued RFB Normative Ruling No. 2,180/2024, which supplements the guidelines set out at the beginning of the month regarding the Individual Income Tax (IRPF) applicable to this year's tax returns.  

This new regulation details the taxation of income and capital gains earned by individuals who are tax residents in Brazil from assets held overseas. Furthermore, the rule addresses the option for taxpayers to adjust the value of assets and rights abroad in their annual tax returns, as permitted by Law No. 14,754/2023. 

• Further reading: Income Tax 2024: Federal Revenue Service discloses rules for this year 
  

How will income from abroad be taxed?

Financial investments and yields from offshore companies

These earnings must be reported on the taxpayer’s Annual Tax Return (DAA) separately from other income and capital gains. They will be subject to Individual Income Tax (IRPF) at a 15% rate, with no possibility of deductions from the taxable base.

It should be noted that income from crypto assets held abroad that are deemed digital representations of other financial investments – including digital portfolios that generate yields –, will also be taxed at the same rate.

In addition, the tax will not apply to exchange rate gains or losses on non-interest-bearing deposits and physical foreign currency holdings not exceeding USD 5,000. 

Offshore tax transparency scheme

The regulations also cover the tax transparency scheme for offshore companies, introducing a provision that allows taxpayers resident in Brazil to report the assets, rights, and liabilities of entities owned abroad as though these were held directly by the individual. This approach means that the taxpayer needs to recognize a taxable event for tax purposes only upon realizing a gain or receiving income, such as dividends or interest.  

This option may be applied to each controlled entity, whether the control is direct or indirect, and once chosen, it is irrevocable and irreversible for the duration of the individual's ownership of the offshore company. It is important to note, however, that if the company has multiple members or shareholders, this decision must be adopted unanimously by all individuals who are tax residents in Brazil. 

Foreign trusts  

Assets and rights held in trusts remain owned by the settlor until his or her death or until distributed to the beneficiary. Depending on the situation, this transfer is treated either as an inheritance or as a donation. 

Income and capital gains stemming from these trusts are considered to be earned by the holder (whether the settlor or beneficiary) and are thus subject to Individual Income Tax (IRPF). 

Furthermore, the assets and rights that are the subject of the trust, as of the base date of December 31, 2023, must be declared in the Annual Tax Return (DAA) by the owner, at acquisition cost. 

Value adjustment for assets and rights held abroad 

The regulation provides tax residents in Brazil with the option to adjust their assets and rights held abroad to market value as of December 31, 2023. 

This adjustment will be subject to Individual Income Tax (IRPF) at a definitive rate of 8% on the difference between the adjusted value and the original cost of acquisition. 

This option can be exercised jointly or separately for each foreign asset or right and applies to a broad spectrum of assets, including: 

• Financial investments, 
• Real estate property, 
• Vehicles, aircraft, vessels, and other movable assets that require registration, 
• Ownership stakes in offshore companies, and
  

• Assets and rights associated with trusts, provided that the taxpayer is the holder of these assets. 

This option must be formalized by May 31, 2024, and requests must be filed through the newly created system for Value Adjustment of Assets and Rights Held Abroad (Abex), accessible via the e-CAC portal. Only upon full payment of the due tax will the corresponding adjustments become enforceable. 

It is worth noting that this option is not applicable to certain assets and rights, including those purchased during 2023, those not reported in the DAA for the 2022 base year, physical foreign currency, jewelry, precious metals, and assets and rights held in Brazil. 

Income Tax compliance

DPC has a specialized team dedicated to advising clients on the most efficient tax practices, ensuring that their tax returns fully comply with the legislation in force. This includes addressing complex scenarios involving international investments and offshore companies. You can rely on our support: dpc@dpc.com.br.