US Taxes for Americans in Brazil – What Expats Need to Know

Expat Living In Brazil

When it comes to expat living in Brazil, the first things that come to mind are Carnival, the Copacabana, the country’s rainforests and its pleasant climate. The friendly attitude of Brazilians and the cultural diversity of South America’s only Portuguese speaking country make Brazil very attractive to expats, albeit crime is a concern given the level of poverty and drug use. Most expats live in Rio de Janeiro, Brasilia or Macae due to more expansive employment options and infrastructure available in these larger cities.

Below is a list of our top 10 most attractive Brazilian cities for foreigners to reside in (in no particular order):

• Rio de Janeiro
• Sao Paulo
• Vitoria
• Brasilia
• Salvador
• Aracaju
• Recife
• Natal
• Manaus
• Belo Horizonte

Guide To US Expat Tax In Brazil

The Tax Samaritan country guide to US expat tax in Brazil is intended to provide a general review of the tax environment of Brazil and how that will impact your U.S. expatriate tax return as a U.S. Expat In Brazil.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Brazil and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Brazil, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in Brazil and this brief article will address a few of those considerations.

Brazil Expat Income Taxes

Who Is Liable For Income Taxes In Brazil

Residents are taxed on worldwide income. Non-residents are taxed on Brazilian-source income only.

Who Is A Brazil Tax Resident
Determination of residence for tax purposes depends on which visa an individual uses to enter the country. Foreign nationals holding either temporary type “V” visas based on a labor contract with a Brazilian company or permanent visas are taxed as residents from the time they enter Brazil. Other foreign nationals are taxed as nonresidents if they satisfy the following conditions:

• They hold other types of temporary visas.
• They are not involved in a local labor relationship.
• They do not stay in Brazil for more than 183 days during any 12-month period.

A foreign national who remains in Brazil for longer than 183 days is subject to tax on his or her worldwide income at the progressive rates applicable to residents.

Tax Year In Brazil And Tax Filing And Payment Rules

The tax year in Brazil is the calendar year.

Expat Tax Withholding In Brazil

Brazil imposes a pay-as-you-earn (PAYE) system. Under the PAYE system, income tax on income received either abroad or from an individual is generally paid monthly through an estimated income tax calculation system known as carnê-leão. In addition, taxpayers are subject to withholding tax on salary received in Brazil.

What You Need To Know About Living And Working In Brazil For Your U.S. Expat Tax Return

When dealing with US expat tax in Brazil, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in Brazil include the:

• If you are a U.S. citizen or a resident alien of the United States and you live in Brazil, US expat tax in Brazil is based on your worldwide income and as such must file a U.S. return for all the years that you are residing in Brazil. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to US expat tax in Brazil, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Brazil. A U.S. taxpayer working overseas in Brazil may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in Brazil does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.

When faced with US expat tax in Brazil there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.

Brazil Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in Brazil is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Banco Bradesco Financiamentos, Caixa Econômica Federal, HSBC, Banco J Safra S/A, Banco Itaú, Banco Santander, Banco do Brasil or at another bank in Brazil or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your US expat tax in Brazil filing requirements.

U.S. – Brazil Social Security Totalization Agreement

All individuals earning remuneration from a Brazilian source are subject to local social security tax, which is withheld by the payer. Contributions are levied on employees at rates ranging from 8% to 11%, depending on the level of compensation, with a maximum required monthly contribution.

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, Brazil has not entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for US expat tax in Brazil.

U.S.- Brazil Tax Treaty And Tax Relief For US Expat Tax In Brazil

The U.S. does not currently have a tax treaty with Brazil.

Testimonial Of Clients Residing In Brazil

We have many expat tax preparation clients that live and work in Brazil. Below is a link to a sample review of one of our clients in Brazil:

Michael W. (Rio de Janeiro, Brazil)

Qualified Dividends In Brazil For Your Foreign Corporation or Investment

Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. Brazil foreign corporations are not eligible for this lower “qualified” dividend rate.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in Brazil. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Brazil. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in Brazil or to request a free 30-minute tax consultation.

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in Brazil and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in Brazil. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in Brazil. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in Brazil advice based on your individual needs.