Last updated on 3 de April de 2023
Brazil is Latin America’s largest economy and a country with plenty of potential. We do an in-depth analysis of the most important taxes in Brazil.
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- Real Estate Taxes
- Inheritance and Gift Tax
- Brazil Public Finances
With a population of more than 200 million people and growing, Brazil is the second most prominent country in the Americas, both demographically and economically, only behind the United States.
While it is true that Brazil faces some challenges, mainly around corruption and political instability, it has made a lot of progress in the last few decades. One of the most promising emerging countries in the world, it is part of the famous BRICS group.
Brazil is also famous for its lifestyle, cuisine, and weather. Not surprisingly, many people are interested in Brazil.
Regarding the cost of living in Brazil, and according to the comparison website WorldData.info, prices are less than half than in the United States, the UK and most European countries. It is, therefore, a very affordable country.
As for its currency, Brazil uses Brazilian Real (BRL), which can be quite volatile. Throughout this post, we will discuss and mention the tax brackets in both local currency and US Dollars, using an approximate exchange rate of $1 = 6 BRL.
Taxes on Earned Income
Let us start our analysis of taxes in Brazil by looking at how labor income is taxed.
Both workers and employers are obliged to make social security contributions in Brazil.
As far as workers are concerned, social security contributions are progressive. There are 4 different brackets depending on the gross salary of the employee, and a maximum contribution level above which social security is no longer paid:
- From 0 to 14,544 BRL ($0 to $2,424): 7.5%
- From 14,544 to 29,128 BRL ($2,424 to $4,855): 9%
- From 29,128 to 43,692 BRL ($4,855 to $7,282): 12%
- From 43,692 to 85,047 BRL ($7,282 to $14,175): 14%
- Over 85,047 BRL ($14,175): 0% (contributions capped at this level)
When it comes to employers, their social security contribution will be between 20 and 22.5% of the employee’s gross salary, depending on the economic activity carried out.
Employer social security contributions are only paid on the first 85,047 BRL ($14,175) of annual salary.
As a result, while social security rates are not low, they are capped at a very low level. This means that middle- and high-income earners face very moderate social security payments.
Workers in Brazil must also pay income tax, which follows a progressive structure where higher levels of income are taxed at higher rates. There are 5 brackets:
- 0 to 22,848 BRL ($0 to $3,808): 0%
- 22,848 to 33,924 BRL ($3,808 to $5,654): 7.5%
- 33,924 to 45,012 BRL ($5,654 to $7,502): 15%
- 45,012 to 55,980 BRL ($7,502 to $9,330): 22.5%
- More than 55,980 BRL ($9,330): 27.5%
As we can see, income tax rates are significantly lower than those we can find in most Western countries.
Interestingly, due to the salary levels used for income tax brackets, most workers with a decent salary in Brazil will end up paying the marginal 27.5% tax rate on their income.
This is because the threshold for the marginal rate is quite low. As a result, the structure of the Brazilian income tax resembles a flat tax rate of 27.5% with lower rates for low-income people.
Capital Income Taxes
Next we analyze how income from savings and investments is taxed.
Interest income received from bank deposits or bond investments will be taxed at a tax rate of 15% or 22.5%, depending on the duration of our investment prior to receiving that interest. The longer the holding period, the lower the tax.
Until 2021, dividends were exempt from taxation in Brazil. However, a tax reform took place and since 2022 dividends are taxed at a rate of 20%.
Fortunately, the same tax reform also lowered corporate taxes, thereby offsetting most of that increase for shareholders.
Net rental income, equivalent to gross rental income less all the costs associated with the ownership of the property, will be taxed at the same rates as earned income. That is, at rates ranging from 0% to 27.5%.
A special rule applies to real estate abroad. If we are tax residents in Brazil and rent out real estate outside of the country, the corresponding net rental income will only be taxed at 15%.
If we realize capital gains from our investments, it is very likely that we will have to pay taxes. The amount of tax to be paid will depend on the type of investments we have made.
When it comes to realized capital gains from shares listed in Brazil, the first 20,000 BRL per month ($3,333) will be exempt from taxes. That is equivalent to 240,000 BRL ($40,000) per year. Gains above that figure will be taxed at 15%.
Realized capital gains from stocks listed abroad will be taxed a bit more heavily. The first 5 million BRL per year ($833,333) will be taxed at 15%. For gains exceeding that threshold, the applicable rate will increase progressively, with a maximum rate of 22.5%.
Lastly, for capital gains from real estate transactions, the applicable rate will be between 15% and 22.5%, depending on the size of these gains. It should be noted that if capital gains result from selling our main home, they will be exempt from taxation in most cases.
It is also important to note that Brazil does not have a wealth tax.
Corporate profits in Brazil are taxed with 3 different rates, and companies are treated differently depending on their size and economic activity:
The general corporate tax is 2.5% as of January 1, 2023. All companies are subject to it.
Additionally, there is a 10% surcharge that must be paid by companies with annual profits exceeding 240,000 BRL ($40,000).
Finally, there is also a social contribution of 9% of profits. In the case of financial institutions and insurance companies, the social contribution increases to 20%.
Thus, the aggregate rate for most companies, except the smallest ones, is 21.5%.
In the case of financial corporations, the aggregate rate is 32.5%.
A series of complex taxes and fees are levied on the consumption of goods and services in Brazil.
Most products are regulated by the ICMS (Imposto sobre Circulaçao de Mercadorias e Serviços), which is set by the different regional governments within Brazil.
The general rate is between 17 and 20%, depending on the region. However, there are higher and lower rates for certain products.
Real Estate Taxes
The purchase of real estate in Brazil is subject to taxes. This tax is known as ITBI (Imposto sobre a Transmissão de Bens Imóveis).
The applicable ITBI rate depends on the state in which the property is located and is in the range of 2-6%.
Once we have bought the property, we will have to pay municipal property taxes every year. These are usually around 0.6% of the value of the property.
Inheritance and Gift Tax
The transfer of wealth and assets by either gift or inheritance may be subject to taxation. This depends on the relationship between the person transferring wealth and the person receiving it, as well as the region in which we live.
However, the tax will be very moderate regardless of the circumstances. In fact, the maximum tax rate for gifts or inheritances will be 8%.
In most situations, the applicable rate will be between 0 and 4%.
Brazil Public Finances
In this last section we will look at the state of Brazil’s public finances. This will give us an idea about the sustainability of the existing tax and spending structure.
The level of debt in Brazil is quite high for an emerging country, close to 85% of GDP. This indicates the risk of tax increases, spending cuts or a devaluation of the national currency:
The debt load remained very stable until 2013, when problems in the country’s real estate sector started to emerge. From then on, public debt increased, although at a moderate rate.
The 2020 crisis brought with it a very significant increase in the national debt. However, debt to GDP decreased in 2021. That was mainly due to two things.
On the one hand, Brazil cut the extraordinary public spending that took place the previous year. On the other hand, inflation had been quite high, which has deflated the debt burden in real teams.
Historically, Brazil has coped with periods of high public debt with currency devaluations. Fortunately, the Brazilian government does not have much debt denominated in foreign currencies, such as US Dollars or Euros, and that makes it less vulnerable to a financial crisis.
At the same time, Brazil has vast amounts of natural resources, including oil, precious metals and base metals, which represent a constant inflow of foreign reserves.
Brazil is a country with a lot of good things to offer: excellent climate, beaches, cuisine, football and a very relaxed attitude.
And taxes in Brazil are quite attractive. Workers bear a very reasonable tax burden, even those with very high incomes. And capital income taxes are also moderate.
The acquisition of real estate, its ownership and its transfer are not heavily taxed. And corporate tax rates are in line with those of major economies.
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And if you want to read about taxes in the second largest country in Latin America, check out this link:
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