Taxes on Investment Income
The Brazilian tax authorities levy taxes on some types of investment income such as interest, rent on real estate and realized capital gains.
Variable Income
Tax on Capital Gains (stocks)
The Department of Federal Revenue of Brazil, English for Secretaria da Receita Federal do Brasil, levies taxes on realized capital gains. The income tax rate is usually 15% for variable income such as stock sales.
The financial institution is required to withhold at a rate of 0,005% when the investor withdraws the investment income as long as this percentage is equal to or greater than BRL 1.00. The taxable period is a one-month period and it is due on the 20th day of the month following the end of each taxable period. If you sell stocks for less than BRL 20,000.00 per month, this capital gain is exempt.
Day Trading
Day Trading is when a day trader initiates and closes out all trades in the same day. The income tax rate is 20% for day trading. The financial institution is required to withhold at a rate of 1% when the investor withdraws the investment income.
Day-trading transactions do not have the BRL 20,000.00 exemption. Both the income rate and the withholding tax rate are bigger on day trading transactions than on normal transactions.
Tax on Dividends
The Department of Federal Revenue of Brazil does not levy taxes on dividends paid out of after-tax-profits by local companies. However, dividends paid by other foreign companies or entities are taxable.
Interest on Equity
Brazilian companies can pay both dividends or Interest on Equity to their shareholders. Interest on Equity, English for Juros sobre Capital Proprio, requires the company to withhold at a rate 15% and there is no additional tax required by the person that receives the payment.
Fixed Income
Tax on Capital Gains for Fixed Income
The Department of Federal Revenue of Brazil levies taxes on realized capital gains. The tax rate depends on how long an investor held the security, so the length of ownership matters for fixed income.
Tax on fixed income:
| From | To | Rate |
| 0 | 180 days | 22.5% |
| 181 days | 360 days | 20.0% |
| 361 days | 720 days | 17.5% |
| 720 days | or more | 15.0% |
This table is also applicable to coupon bonds.
Exceptions
Some investments, like saving accounts, are exempt when bought by an individual.
IOF
Besides Income Taxes, IOF is also levied on investment gains. This is calculated based on the length of time the investment is held. The tax is levied from the first date until the thirtieth day of investment.
Withholding Tax Offset
Companies are allowed to use the taxes withheld for investment income to reduce tax liabilities. However, a person is not allowed to do this when filing income tax.
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.
