MP raises income tax exemption to R$ 2,640 and taxes income abroad

Shortly after announcing the measure in a speech on TV and radio, President Luiz Inácio Lula da Silva signed this Sunday (30) the provisional measure that raises from R$ 1,903.98 to R$ 2,112 the range of exemption from personal income tax (IRPF). With an additional discount of BRL 528 on amounts withheld at source, the exemption reaches BRL 2,640, which corresponds to two minimum wages of BRL 1,320.

To the same extent, the government instituted IRPF collection percentages for income earned abroad by people residing in Brazil, including income from financial investments, controlled entities and trusts (funds that manage third-party assets).

The IRPF on income abroad was a way found by the government to compensate for the loss of revenue with the increase in the exemption range, which should be R$ 3.2 billion in the seven months remaining in 2023, according to an estimate by the Ministry of Farm. With the new band, more than 13 million citizens should stop declaring their income tax, according to official projections.

According to the text of the MP, 15% tax will be charged on income between R$ 6 thousand and R$ 50 thousand. Above that, the rate will be 22.5%, while below that range there is exemption. Taxpayers, however, may update the value of their assets and rights abroad in the annual adjustment statement, using the market value on December 31, 2022.

On the difference between the old and current value, the taxpayer must pay a fixed rate of 10%. In practice, this results in savings for the individual, since under the previous rule the difference between the old and current value would only be verified when the good was eventually sold, applying the full rate of income tax on gains (15% or 22.5%).

By allowing the update, the government is able to anticipate, albeit at a lower rate, the payment of income tax on the property abroad, even if it is never sold. However, opting into the value update is optional. In this way, the taxpayer can reflect on whether the procedure pays off or not, on a case-by-case basis.

According to the new MP, the update can be applied to:

• financial investments;
• real estate in general or assets that represent rights over real estate;
• vehicles, aircraft, vessels and other movable property subject to registration in general, even if in fiduciary alienation;
• holdings in controlled entities.

Projections

According to the government, taxation on assets and rights abroad of people residing in Brazil should generate a gain of BRL 3.25 billion in federal revenue this year, BRL 3.59 billion in 2024 and BRL 6.75 billion in 2025.

Also according to official estimates, there are now R$1 trillion in assets abroad owned by individuals residing in Brazil, and on which there is practically no tax levied on their passive income, such as dividends, interest and royalties.

Another point highlighted by the economic team is that, due to the previous absence of rules, many individuals sought to allocate their assets abroad in order to avoid paying IRPF in Brazil, a maneuver that the government now intends to discourage.

With the new rules, “Brazil starts to adopt a rule already used by most developed countries, such as Germany (since 1972), Canada (1975), Japan (1978), France (1980), United Kingdom (1984), China ( 2008), among others”, said the Ministry of Finance in a note released this Monday (1st).

The ministry also stated that taxation on assets abroad “is highly recommended by the OECD (Organization for Economic Cooperation and Development)”, a multilateral entity made up of 38 countries.