Income Tax: precautions to be taken when declaring assets and earnings abroad

Assets and investments abroad must be declared irrespective of their value

Declaring assets and earnings abroad in the Income Tax requires close attention and a series of precautions should be taken in this respect. Indeed, this is one of the situations where specialized tax support is highly recommended to ensure compliance with the rules.

Taxpayers should get acquainted with the regulations enforced in Brazil to remain in good standing with tax authorities and to avoid double taxation.

When filing the income tax return all assets must be declared, including bank accounts, investments, real estate, rental income etc.

Keep in mind that the Brazilian Revenue Service can crosscheck information with foreign tax authorities, and this can pose a problem for taxpayers whose returns contain omissions or misstatements.

Everyone who is considered tax resident in Brazil is required to supply the Revenue Service with information about their income and assets on a worldwide basis.

Assets and investments abroad: what must be reported

Items to be reported include the following:

Capital gain

For reporting capital gain transactions, the source of income should be taken into account. When earnings are received in Brazilian reais (BRL), the corresponding capital gain is calculated in reais. If the income source is stated in foreign currency, the calculation should be made in US dollars (USD).

How an asset was acquired affects the way it should be reported in the income tax return.

If an investment has been made through a foreign company that is also the owner of those assets, the investor must only report his or her stake. If an individual has purchased those assets directly, the income tax return must contain detailed information on each of these assets.

Bank accounts​

Besides reporting their balance on December 31, taxpayers should also check the exchange rate gains and losses from demand deposits in non-interest-bearing accounts.

Foreign property

​Taxpayers must report all their foreign properties and calculate their values according to the exchange rate in effect on the acquisition date.

Financial investments

Financial investments must be broken down in the tax return. When reporting, taxpayers should make sure to translate the values according to the correct exchange rate.

Foreign rental income on property abroad

Taxpayers who received rental property income are required to pay monthly installments of the income tax due through the so-called "carnê-leão". Said earnings must also be reported in their annual income tax returns.

Double tax agreements

Attention should be drawn to the fact that foreign income may be subject to taxation in the source country. Thus, one should check whether Brazil has signed double tax agreements with the nation in question or if it there is some sort of reciprocity in place to avoid double taxation.

Read more:

Obligations of foreigners in Brazil: planning ensures compliance with the rules Expatriates: workers and companies may benefit from tax and social security treaties

Statement of Brazilian Capitals Abroad

Whenever a tax resident's total assets exceed US$ 1 million or the equivalent thereof in other currencies, the Statement of Brazilian Capitals Abroad (‘Declaração de Capitais Estrangeiros no Exterior’ – CBE) must be filed with the Brazilian Central Bank each year.

Brazilian capitals abroad include goods, rights and assets of any nature held overseas by residents in Brazil.

Keeping receipts is a must

Keeping records of all transactions pertaining to assets and income abroad, including receipts, invoices and proofs of payment helps confirm the source of income and avoid problems with the Brazilian tax authorities. Hence, supporting documents should ideally be kept for at least five years.

Custom tax support

Domingues e Pinho Contadores has a team dedicated to assisting taxpayers whose complex and unique circumstances require custom support.

To remain compliant with tax authorities and achieve tax optimization, you can count on our support: dpc@dpc.com.br