Economic news

Brazil government to tax income from financial investments obtained abroad

2023.05.01 16:09


© Reuters. FILE PHOTO: Brazil’s President Luiz Inacio Lula da Silva gestures as he arrives to attend a business meeting, at Casa de America, in Madrid, Spain April 25, 2023. REUTERS/Juan Medina/File Photo

BRASILIA (Reuters) -Brazilian President Luiz Inacio Lula da Silva’s government published an executive order aimed at increasing revenue by taxing the capital income from financial investments obtained abroad by individuals who reside in Brazil.

Income earned from Jan. 1, 2024, will be considered for that purpose, said the text of the measure published on Sunday night that takes effect immediately. It must be voted on by Congress within four months to become permanent law.

According to the text, income obtained abroad from financial investments will be taxed upon the sale or maturity of assets, while profits and dividends from controlled entities will be taxed on Dec. 31 of each year. The measure also includes the taxation of assets in trusts.

Income up to 6,000 reais ($1,203) will be tax exempt, while income above that but below 50,000 reais will be taxed at 15%. Income exceeding 50,000 reais will be taxed at 22.5%.

The Finance Ministry said the measure had the potential to collect around 3.2 billion reais ($641 million) in 2023, close to 3.6 billion reais in 2024 and 6.7 billion reais in 2025.

The text also raises the possibility of updating assets and rights abroad to their market value on Dec. 31, 2022, with the difference for the acquisition cost being taxed at the rate of 10%. In this case, the tax must be paid by Nov. 30.

The measure was published in an extra edition of the official gazette, but Lula did not mention it during his Labor Day speech, where he pledged to introduce a new policy of real increases in the minimum wage and announced plans to raise the income tax exemption for lower-income earners.

Leftist Lula’s economic team has emphasized that the government will seek to balance public accounts by taxing those who should but are not paying taxes. However, Sunday’s measure was not disclosed in official government channels.

The government recently presented new fiscal rules to ensure the sustainability of public accounts, but success of the framework depends on increasing revenue, which is uncertain.

($1 = 4.9867 reais)

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