On 28 August, the Federal Government forwarded Bill No. 4,173/23 to the House of Representatives, designating it for an urgent constitutional vote. This bill proposes changes to the tax treatment of income received by Brazilian residents from financial investments, offshore entities, and trusts located abroad.
This bill closely mirrors the content of Provisional Measure Order No. 1,171, which was issued in April of the current year. However, the Provisional Measure lapsed without conversion into law within the timeframe stipulated by the Brazilian Federal Constitution.
Bill No. 4,173/23 stipulates that individuals who control companies abroad in (i) jurisdictions deemed tax havens; (ii) countries with favored tax regimes; or (iii) entities earning less than 60% of their income from their own operations, will be subject to an automatic annual taxation on 31 December of each year. The applicable tax rates will range from 0% to 22.5%, detailed in the subsequent table:
| Withholding tax rate | Criteria |
| 0% | Income up to R$ 6,000.00 (six thousand reais) annually |
| 15% | Annual income over R$ 6,000.00 (six thousand reais) up to R$ 50,000.00 (fifty thousand reais) |
| 22,5% | Annual income exceeding R$ 50,000.00 (fifty thousand reais) |
The proposed tax base for investments abroad encompasses a broad definition of capital income, including: (i) revenues from crypto-assets and digital wallets; (ii) earnings from credit operations, notably interest from loans where the borrower resides outside Brazil; and (iii) proceeds from insurance policies with redeemable principal and income for the insured or beneficiaries.
Should Bill 4,173/23 pass, these new tax regulations will apply to income reported by foreign-controlled entities starting in 2024.
