Thyani Rodrigues Puppio

Jul 84 min read

Taxes on variable income in Brazil for digital nomads

Taxes on variable income in Brazil for digital nomads: how are taxes levied on variable income investments in Brazil?

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. Others 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 are terribly afraid of submitting the Final Exit Declaration because of their investments in Brazil.

That's why I've decided to write this series of articles on the taxation of investments.

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 variable 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 (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.

What are Variable Income investments?

Variable-income investments are those in which the return cannot be measured at the time of investment and can vary positively or negatively over time.

Examples of variable income investments are: shares, securities deposits, real estate investment funds, mutual funds, etc.

Taxation on variable income will depend on whether the investor is a tax resident in Brazil or not.

Yes, digital nomads domiciled abroad can invest in variable income assets in Brazil through two accounts: the DAA account (Foreign Domiciled 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 equity investments

If the digital nomad has tax residency in Brazil, the withholding tax rates will depend on the type of variable income investment, and also on the period in which the asset was contracted.

Taxation on income obtained from variable-income investments of those domiciled in Brazil is regulated in Normative Instruction 1585/2015 of the Federal Revenue Service.

The taxation of variable-income income is spread over several articles of this Normative Instruction, each referring to a specific type of asset.

Let's take the general rule for investment funds as an example. In the case of tax residents in Brazil, the taxation of income from investment funds, in general, may vary in the following cases:

a) long-term: from 15% to 22.5% (art. 6)

b) short term: 20% to 22.5% (art. 8)

In the case of income from variable investments by digital nomads domiciled abroad, this is regulated by art. 89 of the aforementioned normative instruction. In the case of equity investment funds, a fixed rate of 10% applies.

The taxation of fixed-income investments is completely different. I will discuss the taxation of fixed-income investments in more detail in this article.

Note that it is not so simple to analyze which of the options would be the most viable based on tax rates alone. For this reason, it is extremely important to carry out a personalized analysis of the investment portfolio so that it is possible to analyze, in addition to the investment portfolio, 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 and Analysis of Investment Portfolio Taxation, we are a law firm specializing in the subject. All you have to do is contact us via WhatsApp or by e-mail: contato@trpuppioadvocacia.com.br

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, 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 analyze the investment portfolio and 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).