US Expat in Brazil and Taxes

Brazil is the largest country in Latin America. It is well-known for its futbol, gorgeous beaches, Carnival, the Amazon. Brazil has also become a prosperous country filled with economic opportunities.

If you are planning to become a U.S. expat in Brazil, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: Mike Vondran

Taxation in Brazil

Let’s start by understanding who is required to pay taxes in Brazil. Residents are taxed on worldwide income. Foreigners who are in the country for 183 days or more within a 12 month period are considered residents for tax purposes. Non-residents are taxed on Brazil-source income only.

Brazil utilizes a progressive tax system. The income tax rates are follows:

• Employment Income: Progressive up to 27.5%
• Capital Gains: Generally 15%

Note that Brazil and the U.S. do not have a social security tax agreement in-place. This means that certain U.S. expats will be required to pay into both social security programs.

How Living in Brazil Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Brazil. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats living in Brazil with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Brazil

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information.

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. It is important to know that Brazil does have a FATCA agreement in-place with the U.S.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.