Account 4373 - foreign investor account: can digital nomads domiciled abroad invest in Brazil?
A number of myths circulate the internet, two of the biggest being that by submitting the Declaration of Final Exit (or popularly known as tax exit), the individual will be prevented from:
a) Have a bank account in Brazil and;
b) You will lose your investments in banks and/or brokerage houses.
The first is one of the biggest fallacies ever spread on the internet and even by bank employees due to their lack of knowledge of foreign exchange legislation. I talked about the myth of the extinction of the bank account in detail in this article.
Coincidentally, it is also being spread on the internet that those who submit the Definitive Exit Declaration will lose their investments from their bank and/or brokerage accounts.
In this article, I will demonstrate that the claim that those who do not have tax residency in Brazil will lose their investments (or cannot have investments) is a myth, using national foreign exchange legislation as a basis.
Before going into the subject of this article, it is worth briefly explaining what Tax Residency is, and what the Definitive Exit Declaration is.
What is Tax Residency?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the assertion that, because they have no fixed abode, they don't have to declare their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week. Everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
What is the Final Exit Declaration?
The Final Exit Declaration is the document submitted to the Receita Federal (Federal Revenue Service) which will release the taxpayer from the Brazilian tax authorities. In other words: you will no longer be a taxpayer in Brazil, so you will no longer have the obligation to file an annual income tax return.
I'll talk more about the Final Exit Declaration in this article.
Without further ado, let's get down to the subject of the article.
What is account 4373?
The 4373 account is named after the number of the Resolution that regulates it: Central Bank Resolution No. 4,373/2014.
The 4373 account is a specific account that banks and brokers can offer to investors resident abroad. Through the 4373 account, foreign residents can invest in various types of investment: fixed income, variable income, debentures, etc.
The 4373 account is not to be confused with the DAA account. The DAA account is an ordinary bank account for residents abroad, in which it is only possible to invest in certain fixed-income products, such as savings accounts and CDBs offered by the bank itself.
I'll talk more about the DDA account in this article.
Because account 4373 is an account for foreign investors, Central Bank Resolution 4.373/2014 lists some requirements for these investors to be able to use this account.
Requirements for using account 4373
In order for digital nomads living abroad to be able to use the 4373 account and, consequently, invest in the Brazilian stock exchange, they must meet the requirements listed in Article 2 of Central Bank Resolution No. 4,373/2014:
PT:
“Art. 2º Previamente ao início de suas operações, o investidor não residente deve:
I - constituir um ou mais representantes no País;
II - obter registro na Comissão de Valores Mobiliários; e
III - constituir um ou mais custodiantes autorizados pela Comissão de Valores
Mobiliários.
§ 1º O representante de que trata o inciso I deve ser instituição financeira ou
instituição autorizada a funcionar pelo Banco Central do Brasil e não se confunde,
necessariamente, com aquele exigido pela legislação tributária.
§ 2º Nas situações em que, na data da entrada em vigor desta Resolução, o
representante de que trata o inciso I não se adequar ao disposto no § 1º, o investidor não
residente terá até 180 (cento e oitenta) dias para promover a regularização de sua representação.
§ 3º A Comissão de Valores Mobiliários disciplinará o registro do investidor não
residente a que se refere o inciso II.”
EN:
"Art. 2 Prior to the start of its operations, the non-resident investor must:
I - set up one or more representatives in the country;
II - obtain registration with the Securities and Exchange Commission; and
III - set up one or more custodians authorized by the Securities and Exchange Commission Securities Commission.
§ Paragraph 1 The representative referred to in item I must be a financial institution or institution authorized to operate by the Central Bank of Brazil and is not to be confused, the one required by tax legislation.
§ Paragraph 2 In situations where, on the date this Resolution comes into force, the representative referred to in item I does not comply with the provisions of § 1, the non-resident investor will investor will have up to 180 (one hundred and eighty) days to regularize their representation.
§ Paragraph 3 The Securities and Exchange Commission shall regulate the registration of the non-resident investor referred to in item referred to in item II."
The representative(s) referred to in item I of said article 2 is the Legal or Tax Representative.
The duties of the Legal or Tax Representative are set out in Article 3 of Resolution No. 4,373/2014, which are:
PT:
“Art. 3º O ato de constituição do representante a que se refere o inciso I do art. 2º
deste Regulamento deve prever expressamente os seguintes poderes e obrigações relativos ao exercício da função de representação:
I - efetuar e manter atualizados os registros de que tratam os arts. 3º e 4º desta
Resolução;
II - prestar ao Banco Central do Brasil e à Comissão de Valores Mobiliários as
informações solicitadas e manter, pelo prazo de 5 (cinco) anos, o controle individualizado, por representado, dos ingressos e das remessas realizadas ao amparo deste Regulamento e os comprovantes do cumprimento das obrigações contratuais e de movimentação de recursos;
III - comunicar imediatamente ao Banco Central do Brasil e à Comissão de Valores Mobiliários, observadas as respectivas competências, a extinção do contrato de representação, bem como a ocorrência de qualquer irregularidade de que tome conhecimento; e
IV - receber, em nome do investidor não residente, citações, intimações e notificações relativas a procedimentos judiciais ou administrativos instaurados com base na legislação dos mercados financeiro e de capitais, relacionados a operações objeto do contrato de representação firmado com o investidor não residente.”
EN:
"Art. 3 The act of constitution of the representative referred to in item I of art. 2 of this Regulation must expressly provide for the following powers and obligations relating to the exercise of the representation function:
I - to make and keep up to date the records referred to in articles 3 and 4 of this Resolution;
II - to provide the Central Bank of Brazil and the Securities and Exchange Commission with any information requested and maintain, for a period of 5 (five) years, individualized control, by represented, of the inflows and remittances made under the terms of these Regulations and the proof of compliance with contractual obligations and movement of funds;
III - immediately notify the Central Bank of Brazil and the Securities
Securities Commission, in accordance with their respective powers, of the termination of the
the termination of the representation contract, as well as the occurrence of any irregularity of which it becomes aware; and
IV - receive, on behalf of the non-resident investor, summonses, subpoenas and
notices relating to judicial or administrative proceedings instituted on the basis of the
financial and capital markets legislation, related to transactions which are the object of the representation agreement signed with the non-resident investor."
These legal or tax representatives are the financial institutions authorized to operate by the Central Bank.
Obtaining registration with the Securities and Exchange Commission (CVM in Brazil), as referred to in item II of article 2, requires foreign investors to obtain registration of their CPF with the Securities and Exchange Commission (CVM in Brazil). Without this registration, the foreign investor will not be authorized to make investments on the stock exchange.
This registration is usually done through brokerage houses and banks with the foreign investor's authorization.
The custodian referred to in item III of article 2 is usually the financial institutions themselves, since they are the ones authorized by the CVM (CVM Instruction 542/2013) to act and perform the functions of conservation, control and reconciliation of the securities held in the name of the foreign investor, for example.
Unfortunately, not all brokers and banks provide this type of account and, in view of these requirements, maintenance fees can vary from institution to institution.
What about withholding taxes?
Withholding tax is only levied on these investments when they are redeemed. However, the withholding tax rate will depend on two factors:
a) The type of investment and the length of time it has been held;
b) The individual's tax residence.
Fixed-income investments are taxed at source differently from variable-income investments and investment funds, for example. In addition, depending on the term of the investment (short, medium or long), taxation also changes.
Depending on the individual's tax residence, the withholding tax rates can also change.
The taxation of income from investments in capital markets and stock exchanges (residents and non-residents) is regulated by Normative Instruction 1585/2015 of the Federal Revenue Service ("Receita Federal").
Because of the complexity of the subject, I decided to do a series of articles on the taxation of investments, this being the second of them. In this first article I commented on the taxation of fixed income (CDB, RDB, Tesouro Direto etc). I will soon be writing articles on the taxation of variable income investments, debentures, bitcoins, etc.
It should be noted that analyzing taxation in order to choose the best strategy is not as simple as it sounds. That's why it's extremely important to carry out tax planning so that, in addition to the investment portfolio, it's possible to analyze the individual's economic and social situation in order to find the best solution.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. All you have to do is contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
Should I make the tax exit or not?
There is no right answer to this question, as it will depend on the specific case of each individual, taking into account not only their investment portfolio, but also their social and economic scenario, together with the objectives they want to achieve.
We are currently experiencing a period in which taxation in Brazil tends to increase for various reasons, mainly because we have a fiscal deficit of over R$1 billion reais and a lack of political will to carry out effective administrative reform (cutting spending).
I'll comment more on the subject of increased taxation in this article.
However, whatever one's choice and/or intention, it is important for digital nomads to consider the tax issue in order to avoid double taxation and tax evasion.
In order to know which is the best path and the best strategy with regard to investments, as well as assets as a whole, it is essential to carry out tax planning with a tax lawyer. In addition to avoiding double taxation and tax evasion, tax planning also prevents taxpayers (digital nomads) from paying undue taxes (more than they should).
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. All you have to do is contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
