Taxes on fixed income in Brazil for digital nomads: what are the taxes on fixed income investments?
In addition to what they receive directly from their work, many digital nomads receive income from investments of various kinds, such as fixed income investments, variable income, bitcoins, investment funds, debentures, among others.
Most digital nomads invest in their bank accounts in Brazil or through an investment broker that operates in Brazil and on the stock exchange. Many digital nomads want to invest outside Brazil, but are worried about how the income from these investments would be taxed in Brazil.
Other digital nomads no longer have Brazil as their habitual residence, but they have a huge fear of submitting the Definitive Exit Declaration because of their investments in Brazil.
That's why I've decided to write this series of articles about tax on investments, starting with fixed income.
Before going into the topic of investments, it should be noted that this article is not a recommendation on investments or how to invest in fixed income.
However, 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 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.
What are fixed income investments?
Fixed-income investments are those that have a defined return, following a pre- or post-defined rate.
Examples of fixed income investments: CDB, RDB, Tesouro Direto, LCI, LCA.
Taxation on fixed income will depend on whether the investor is a tax resident in Brazil or not.
Yes, digital nomads domiciled abroad can invest in fixed income products in Brazil through two accounts: the DAA account or the 4373 account.
With the DAA account you can invest in savings accounts or CDB'S from the bank you have contracted.
I'll go into more detail about the DAA account and its charges in this article.
The 4373 account is ideal for digital nomads who want to diversify their investment portfolio, such as variable income and investment funds.
I talk more about the 4373 account in this article.
Taxes on fixed-income investments
As already mentioned, the amount of tax will depend on whether the investor is domiciled in Brazil or not.
If the digital nomad has tax residency in Brazil, the withholding tax rates will depend on the type of fixed income investment, and also on the period in which it was contracted.
Taxation on income obtained from fixed-income investments for those domiciled in Brazil is regulated by the Federal Revenue Service's Normative Instruction 1585/2015.
Most fixed-income investments follow Article 28 of this Normative Instruction, where the rates vary between 15% and 25%. There are fixed-income investments that do not follow the rules of art. 28.
In the case of income from fixed-income investments by digital nomads domiciled abroad, they are regulated by art. 89 of the aforementioned Normative Instruction, which states that a fixed rate of 15% generally applies.
It is not so simple to analyze which of the options would be the most viable based on the tax rates alone. 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 (submit the Final Exit Declaration) or not?
There is no right answer to this question, as it will depend on the specific case of each individual, not only considering their investment portfolio, but also their social and economic scenario, combined with the objectives they want to achieve.
We are currently experiencing a period in which taxation in Brazil tends to increase for a number of reasons, mainly due to the fact that we have a fiscal deficit in excess of R$1 billion reais and the lack of political will to carry out an 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
