The Provisional Measure (MP) n. 1.171/2023 was published on Sunday, 4/30/2023, and foresee the institution of a new form of automatic taxation by the IRPF (Individual Income Tax) on income from financial investments, controlled entities, and Trusts located abroad, held by Brazilian individuals.
Foreign Holdings for financial investment
From January 1, 2024, the individuals who own financial investment holding companies will be subject to the progressive tax rates described below:
- 0% on income up to R$ 6,000
- 15% on income exceeding R$ 6,000 and not exceeding R$ 50,000
- 22.5% on the portion of income exceeding R$50,000
The automatic taxation will occur on December 31 of each year, including on eventual exchange variations on the investment.
Financial Investment by Individuals
For investments held directly by an individual, the taxation remains at the moment of availability (e.g. redemption, amortization, disposal, maturity, or liquidation).
Income from Controlled Companies Abroad
For individuals who control companies abroad the moment of taxation remains the same, at the moment of availability (e.g. redemption, amortization, disposal, maturity or liquidation), however, the progressive tax rates will come into effect:
- 0% on income up to R$6,000
- 15% on income exceeding R$ 6,000 and not exceeding R$50,000
- 22.5% on the portion of income exceeding R$ 50,000
Controlled Companies Abroad with Passive Income
For individuals with controlled companies abroad that have at least 20% of passive income, the automatic annual taxation on December 31 is now applied. By MP 1.171/2023, the following income is considered as a passive income:
d) equity interests
f) capital gains, except in the sale of equity interests or assets of a permanent nature permanent assets acquired more than two years ago
g) financial investments
h) financial intermediation
Controlled Foreign Companies located in Tax Havens and Privileged Tax Regimes
For individuals with foreign controlled companies, established in a tax haven or a privileged tax regime, the automatic annual taxation on December 31 will be applied, according to the progressive tax rates from 0% to 22.5%.
Update of the Value of Assets and Rights Abroad
The Provisional Measure also foresees the possibility of updating the cost value of the assets and rights held abroad, since the taxpayer opts to update the values already in the income tax return 2022/2023 to be filed until May 31, 2023.
- On the capital gain in the value adjustment, there will be a 10% taxation, and the tax must be paid until November 30, 2023.
- For the cost value of the controlled companies abroad may have its value updated until December 31, 2023, being the gain also taxed at 10% (tax must be paid until May 31, 2024).
The Provisional Measure n. 1.171/2023 established how the taxpayer must declare the investments held through Trusts abroad.
- The assets and rights must be declared by the settlor of the Trust
- Trusts will now be transparent to the RFB, and the taxpayer must declare the underlying assets and rights held by the Trust
- Income earned by the Trust will be taxed by the settlor, according to its nature (financial investment, controlled abroad etc.), applying progressive rates from zero to 22.5%
Transfers of assets or from the Trust to the beneficiary will be considered a donation (in life) or causa mortis (in succession).