IRPF – Individual Income Tax
IRPF, short for Imposto sobre a Renda das Pessoas Físicas in Portuguese, is imposed by federal government on individual income. States and cities in Brazil do not levy income taxes. An income tax return must be filed every year by business and individuals.
Who is required to file a tax return? It will depend on your income, your assets, your age and you filing status. However, even if you are not required to file you may want to do so because you may be entitled to a refund as many employees have income taxes withheld from their paycheck.
The Brazilian income tax system, like the US Income tax system, is a pay-as-you go tax which means that as we earn the income, we pay taxes on it.
Imposed on
IRPF is imposed on any type of income such as earned income, capital gains and passive income. Earned and unearned incomes are taxable. Employers usually must withhold income tax from all employees’ wages and from independent contractor (self-employed individuals) payments.
Some incomes have differentiated taxation which are only subject to tax withholding. Therefore, there are no additional taxes to be paid when the income tax return is filed. Examples of income subject to differentiated taxation are Christmas bonuses, investment income, and profit sharing.
Basis and Rate
The IRPF is a progressive tax. Therefore, the percentage of tax paid depends on the income level. There were five tax brackets in 2018. Some investments and capital gains have different tax rates based on investor’s tax bracket and the amount of time the investment was held.
Exemptions
It is allowed to claim your qualifying children as dependents. The total of exemptions claimed may change every year.
Some types of income are not subject to income tax (non-taxable income). Dividends and interest earned in saving accounts in Brazil are exempted incomes. Meals and transportation paid by employers to their employees are also exempted incomes.
There are two types of deductions, the standard deductions and the itemized deductions. With the itemized deductions method there are some deductions you can take, such as alimony and education.
It is required to have all supporting documents. You must be prepared to provide receipts and other documentation in order to support your claimed income and expenses in the event of a Department of Federal Revenue of Brazil audit.
Taxpayer and Governmental Agency
IRPF is owed by the majority of individuals. This is a federal tax, therefore it is paid to the Department of Federal Revenue of Brazil. The official document to pay it is the DARF (Federal Taxation Form).
Tax Principles
- Progressive tax: The tax rate in progressive tax increases as the taxable amount increases. Therefore, individuals and companies which make more money pay a larger percentage of taxes.
Laws
- Decree (Regulation) 9580, November 22, 2018 (IRPJ – Income Tax)
Tax Returns and Forms
The taxpayer is required to declare the IRPF on the following tax returns and forms:
- DIRPF – Brazilian Individual Income Tax Return
Written by Thiago M. Silveira
Thiago M. Silveira is a Brazilian Chartered Certified Accountant (CRC) with more than 10 years of success in the accounting field, with insightful understanding in all aspects of accounting, financial reports preparation, local taxes and compliance in Brazil.
