RBF amends legislation dealing with IR taxation on individual’s income

Federal Revenue of Brazil (RFB) published on Nov-06-2017 a new act dealing with general taxation rules for Individuals’ Income Tax (IRPF): RFB Normative Instruction 1,756.

People should attempt to the changes brought, which, according to the RFB were important to "unify the tax legislation and guide the taxpayer in the interpretation that the Treasury has been adopting.

We may highlight the following points:

Exemptions

i. The exemption provided for the income from sick leave, of a social security nature, is different from that resulting from a health care leave, of a salary nature, on which the individual income tax is levied.

ii. For exemption purposes from capital gain earned from sale of the only real estate the holder owns, whose disposal value is up to BRL 440,000.00, provided that no other disposal has been made in the last 5 years, and the limit is in relation to:

- the good or value of all assets or rights of the same nature, in case of sale of several assets, in the same month;

- the part from each condominium member, including in the case of common-law marriage with agreement between the partners, in case of property in condominium, considered for (i) of each joint owner, in the case of property in condominium, and(ii)to the real estate in communion, in the case of a married society;

If the property was acquired by spouses obligatorily married under the separation of assets regime, these requirements should be individually verified, per spouse, observing the price portion that it is intended to.

Capital gains

Capital gains earned by individuals resident in Brazil in the sale of residential real estate are exempted or are not subject to income tax, if the seller uses the sale product in the purchase of residential real estate located in Brazil within 180 days from the conclusion of the agreement.

Failure to comply with these conditions will entail a tax requirement based on the capital gain plus:

• default interest, calculated from the second month following the property sold value or installment reception; and

• late charges and automatic penalties, calculated from the second month following the property sold value or installment reception, if the tax was not paid within 210 days from the agreement signature date;

Remittances to other countries

Consignment abroad, for educational, scientific or cultural purposes, including for the payment of school fees, registration fees at congresses, conclaves, seminars or alike, and fees for proficiency examination, as well as remittances made by individuals residing in Brazil to cover the sender or their dependents medical and hospital health care expenses abroad.

In addition, the stimulating innovation grant by Scientific, Technological, and Innovation Institutions (ICT), under the terms of Article 9, from the Law 10,973/2004, is characterized as a donation, does not constitute employment relationship, and does not characterize consideration of services nor advantage to the donor.

Income relating to contractual penalties

Penalties and any other benefits paid or credited by a legal entity from infraction, not resulting in its termination, are subject to the Withholding Income Tax (IRRF), using the progressive table and the Annual Adjustment Statement (ADS).

It is worth noting that the penalty or any other benefit paid or credited by a legal entity, even if as compensation, the individual beneficiary, including exempt, by termination of contract, is subject to IRRF at 15% rate, the tax being considered as an advance of the due in each calculation period.

Exemptions given by PGFN

Income dealt with declaratory acts issued by the Attorney General of the Treasury (PGFN), based on Article 19 of Law 10,522/2002, are exempted from IRRF and taxation in the DAA, provided that the respective declaratory acts terms are observed:

i. funds received as nanny reimbursement (PGFN Declaratory Act 1/2014);

ii. income received as moral damages (Declaratory Act 9/2011 and opinion PGFN PGFN/CRJ No 2123/2011);

iii. amounts received as retirement or pension, if the recipient has "blindness" disease order, whether binocular or monocular, under a proper medical statement by (Executive Declaratory Act 3/2016 PGFN);

iv. money earned as compensation from expropriation, whether by public utility or social interest (PGFN Note 1,114/2012, item 69 of Annex);

v. retirement pensions, pension or retirement perceived by individuals with severe disease, pursuant to sections II and III of Article6, regardless the evidence of contemporaneous symptoms or recidivism of the disease (PGFN/CRJ Opinion 701/2016 and Declaration Act PGFN 5/2016).

RERCT

In the event of joining the Special Regime for Exchange and Tax Regulation (RERCT), dealt with in Law 13,254/2016, the Company’s resources, assets, and rights of any nature contained in the single statement for accession to this scheme should also be informed in the DAA of the 2014 calendar year and years following, observing that:

• The revenues, rewards and accessories from use of resources, assets or rights of any nature settled by RERCT, gained in 2015 calendar year, shall be included in the DAA for the calendar year of joining and the following, applying the provisions of Article 138, of Law 5,172/1966 (National Tax Code), if the necessary corrections are made until the last day before the deadline for joining the RERCT;

• Due to the reopening of deadline for joining the RERCT, as provided in Article 2, of Law 13,428/2017, the opting individual shall file the 2017 DAA, calendar year 2016, to RFB in which assets and rights record shall contain information about resources, assets and rights stated in Dercat, subject to the rules set forth in RFB Normative Instruction 1,704/2017.

Discounts

Among other discounts, the amounts that may be discounted from Income Tax calculated in DAA are those referring to:

i. investments in independently produced Brazilian cinematographic audiovisual works, by means of acquisition of rates representing commercialization rights on these works, provided that such investments are made in the capital market, in assets established by law and authorized by the Securities and Exchange Commission (CVM), and production projects approved by the National Cinema Agency (Ancine) until 2018 (calendar-year 2017);

ii. sponsoring production of independent Brazilian films, whose projects Ancine approved in advance until 2018 (2017 calendar-year);

iii. acquisition of National Film Industry Funding (Funcines) shares until 2018 (2017 calendar-year);

iv. amounts spent as sponsorship or donation, in direct support to sports and parasports projects previously approved by the Ministry of Sports (ME), up 2023 (2022 calendar year);

v. amounts corresponding to donations and sponsorship directly on behalf of programs and services for National Support Program for Oncology Care (Pronon) until 2021 (2020 calendar year);

vi. the amounts corresponding to donations and sponsorship directly on behalf of programs and services for National Program to Support Health Care of Disabled Person (Pronas/PCD), to 2021 (2020 calendar year);

vii. withheld tax at source or paid (mandatory monthly payment and additional payment) corresponding to income included in the calculation basis.

Children custody effects

In case of children with separated parents, the taxpayers may consider as dependents those who are in their custody in compliance with a judicial decision or legally approved agreement. In turn, where there is a shared custody, each child may be considered as dependent on only one parent.

Medical expenses

For the treatment given to medical expenses, we may list:

i. those compensated by source in payroll, relating to payments made by individuals to doctors, dentists, psychologists, physiotherapists, speech therapists, occupational therapists and hospitals as well as the laboratory tests cost, radiological services, orthopedic devices and orthopedic and dental prostheses should not be discounted from IR;

ii. those paid in a given calendar-year are nondeductible, when incurred in the previous calendar-year and related to tax dependent only on the DAA of the calendar-year, in which the expenditure occurred;

iii. payments to doctors and hospitals, as well as the laboratory tests cost performed on medically assisted IVF, properly supported, are deductible only in the patient's DAA who received medical treatment;

iv. absence of address in the medical receipt is reason to rise the non-acceptance of this document as proof means for a medical expense, but does not prevent other to use other evidences, such as consultation to RFB’s online systems.

Income from self-employment

Taxpayers who receive income from self-employment, including notary and registration service and auctioneers holders, may deduct from income from the practice of their activity, among others, the amounts paid to employees due to the employment relationships , even if they do not include their remuneration, if they set up expenses necessary to the collection of revenue and to the maintenance of production source, observing that:

- in case of conventions and collective bargaining agreements, all benefits provided for therein and due to employee employer's obligations and thus expenses necessary to collection of revenues and to maintain the production source;

- expenses on meal and supermarket vouchers and health plans equally intended to all employees, proven by reputable documentation and recorded in the cash book, may be deducted from the income collected by notarial and record services holders for tax on monthly income calculation purposes and in DAA;

- expenses on hiring armored car service for cash transport may be classified as financing expense for notary and registration services, where is possible to discount them at IRPF calculation of holders of such services, since it is recorded in cash book and proven by skillful and reputable means.

New annual progressive table

Item VI was added to Annex VII of RFB Normative Instruction 1,500/2014, with the annual progressive table effective for 2017 (2016 calendar-year), as follows:

Calculation Basis (BRL)	Rate (%)	Portion to Discount from IR (BRL)
Up to 22,847.76	-	-
From 22,847.77 to 33,919.80	7.5	1,713.58
From 33,919.81 to 45,012.60	15	4,257.57
From 45,012.61 to 55,976.16	22.5	7,633.51
Over than 55,976.16	27.5	10,432.32