Capital gain in foreign currency: what individuals should consider

There is no news that the taxation may compromise the viability of investments and operations of individuals residing in Brazil. Therefore, attention to a series of items ends up being necessary when dealing with capital gains in foreign currency.

Here are important highlight to consider:

Capital gain in foreign currency

The capital gain results from the difference between the sale value of assets or rights and the acquisition of their cost.

Taxation of Income Tax

Several operations are subject to income tax on capital gain, such as transactions involving the sale of assets or rights and the settlement or redemption of investments, owned by individuals, acquired in foreign currency.

In the sale of assets and rights, it is necessary to calculate the income tax on the capital gain for each operation. The tax must be paid by the last business day of the month following the receipt of the amounts:

Amounts	Rates
Up to BRL 5 million	15%
From BRL 5 million to BRL 10 million	17.5%
From BRL 10 million to BRL 30 million	20%
Above BRL 30 million	22.5%

Credit from interest on investments abroad is also subject to tax on capital gains in foreign currency.

In case of sales of foreign currency in cash, the tax is calculated annually. The taxpayer must pay in a single installment until the date set for the filing of the Annual Adjustment Statement (DAA), informing such operation.

The tax calculated on the capital gain is not offset in the AAD, as it is an income subject to exclusive taxation.

It is also important to note that income tax paid in a country with which Brazil has signed agreements to avoid double taxation, or in a country where there is mutual treatment, may be considered as a tax reduction due in Brazil, as long as it is not offset or returned overseas.

Non-taxation and exemption

There are cases in which income tax is not applied to the capital gain:

• the capital gain earned on the sale of assets abroad or representing rights abroad, and on the settlement or redemption of investments, acquired, by any means, by the individual, as a non-resident;
• the exchange variation from the sale of assets and rights acquired and financial investments made with income originally earned in foreign currency;
• the capital gain earned on the sale of foreign currency held in cash, whose total sales, in the calendar year, is equal to or less than the equivalent of USD 5,000.

The exemption applies to situations in which the capital gain involves sales values for the same set of assets overseas equal to or less than:

• limit of BRL 35 thousand made within the same month, such as the sale of shares, for example;
• In the case of income from investments (e.g. interest), the exemption limit does not apply, that is, the income must be taxed in Brazil regardless of its value, and is exempt from tax when it amounts to less than BRL 10.

Calculation of capital gain

It is worth mentioning that, when it comes to capital gain transactions, the origin of the resources must be considered. Thus, if the resources come from Brazilian Reais, the capital gains are calculated in Brazilian Reais. If the origin of the resources is in foreign currency, the capital is calculated in US dollars.

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Related issues:

• Repatriating funds: taxation on amounts transferred from other countries to Brazil

Expert support ensures compliance with the rules

Domingues e Pinho Contadores has a service center dedicated to individuals, specialized in supporting taxpayers in complying with tax obligations in Brazil. Learn more about the services here.