Capital gain in foreign currency

Taxation of assets abroad - and their gains - is a matter of great concern to individuals resident in Brazil.

Investing abroad is not new and the number of people with foreign resources is large due to the facilities and advantages offered. However, many of these people did not report such amounts in Brazil.

Since the establishment of the Special Regime for Exchange and Tax Regulation (RERCT), in 2016, the situation has changed. With the encouragement of the Government, taxpayers had the opportunity to settle the tax situation in the country and were required to report assets held abroad annually, and to offer taxation any income received from foreign paying sources.

Capital Gain - What is it?

According to the SRF Normative Instruction 84/2001, Article 2, which deals with the determination and taxation of capital gains on the disposal of assets and rights by individuals, “capital gain is considered the positive difference between the sale value assets or rights and the related cost of acquisition thereof”.

Thus, from the above concept, we can understand that several operations are subject to income tax on capital gain. As an example, we may mention the sale of assets or rights and settlement or redemption of investments, owned by individuals, acquired in foreign currency.

Regarding this aspect of the subject, and in accordance with current legislation (SRF Normative Instruction 118/2000), it is noteworthy that there are some hypotheses of capital gains in foreign currency, namely:

• Assets and Rights Acquired and Investments Made in Foreign Currency with Income Originally Earned in Brazilian Reais
• Assets and Rights Acquired and Investments Made in Foreign Currency with Income Originally Earned in Foreign Currency
• Assets and Rights Acquired and Investments Made in Foreign Currency with Income Originally Earned Part in Reais and Part in Foreign Currency
• Foreign Currency Held in Cash

Determination and payment of income tax on capital gains in foreign currency

Capital gains (positive difference between the disposal value and the acquisition cost of the assets or right) must be in the currency in which the transaction is expressed.

In the disposal of assets and rights of the hypotheses mentioned above, it is necessary to calculate the income tax on the capital gain in each operation, as they occur. Such tax shall be paid by the last business day of the month following the receipt of the following amounts:

Values	Tax rates
Up to BRL 5 million	15%
From BRL 5 million to BRL 10 million	17.50%
From BRL 10 million to BRL 30 million	20%
Over BRL 30 million	22.50%

One should note that interest credit on foreign investments is also subject to capital gains tax in foreign currency.

For the disposal of foreign currency in cash, the calculation is annually performed. The taxpayer must pay in a single installment by the deadline to file the Annual Adjustment Report (DAA), informing this operation.

The tax on capital gain can not be offset at DAA as it is income exclusively subject to taxation at source. However, according to IN SRF 118/2000, Article 19:

“Income tax paid in a country with which Brazil has entered into international agreements, treaties or conventions providing for offsetting, or in which there is reciprocal treatment, may be considered as a reduction of the tax due in the country, provided that it is not offset. or returned abroad ”.

The individual must pay the tax, when due, through DARF.

Non-levying and exemption

Also according to SRF IN 118/2000, Article 14, there are cases in which there is no income tax on capital gain:

“I - the capital gain earned on the disposal of assets located abroad or representing rights abroad, and the settlement or redemption of financial investments, acquired, by any means, by the individual, as non-resident;

 II - the exchange variation resulting from the disposals referred to in Articles 4 and 5; (acquired assets and rights and short-term investments with income earned originally in foreign currency) our comment;

 III - the capital gain earned on the disposal of foreign currency held in kind, whose disposals’ total in the calendar year are equal to or less than the equivalent of US$ 5,000.00 ”

 At last, but not the least, there is also the exemption of capital gains from operations equal to or less than:

• Limit of BRL 20,000.00 when shares traded on the over-the-counter market are sold;
• Limit of BRL 35,000.00 in the case of settled or redeemed financial transactions performed within the same month, such as sale of shares, for example.

Count on advice expert professionals

There are a number of issues that should be assessed for the proper calculation and collection of income tax on capital gains in foreign currency or even for non-levy or exemption.

The group of departments at Domingues and Pinho Contadores to provide service to domestic and foreign Individuals has a complete set of solutions, guaranteeing them peace of mind and security, regarding their tax obligations in the country. Learn more about our services here.