From Rio de Janeiro to Sao Paulo to Salvador, Brazil is a popular destination for US expats. As our clients from Brazil know, US Citizens are required to file and pay taxes every year to the IRS, regardless of their country of residence. While their US tax return is due on April 15, there is an automatic two month extension to file for US citizens living overseas and any taxpayer can request an extra 6 month extension.
While US citizens living in Brazil are required to file US taxes, there are several exemptions available to those citizens living abroad to help mitigate the amount of taxes owed. These include the Foreign Earned Income Exclusion and the Foreign Tax Credit. The Foreign Earned Income Exclusion can exclude up to $100,000 of earned income from a taxpayers income, and therefore that amount is tax free. The Foreign Tax Credit can be used to reduce the amount of taxes owed in the US by the amount of taxes paid in a foreign country.
US citizens living in Brazil are required to pay Brazilian tax in addition to US tax. Residents of Brazil are liable to pay taxes on worldwide income, while nonresidents are required to pay taxes on Brazilian sourced income. Brazil has a progressive tax structure with rates quite similar to the US. Brazil’s highest tax bracket is 27.5% of total income. Due to the similarity to the US tax rates, it is important to discuss how to structure your foreign (non-US) income on your tax return and whether to use the Foreign Tax Credit or the Foreign Earned Income Exclusion.
In accordance with Brazilian legislation, a foreigner working in Brazil is considered resident if:
- On the date of arrival in Brazil the foreigner has a permanent visa
- On the date of arrival in Brazil, the foreigner has a temporary visa, (i) to work under a labor contract; (ii) on the 184th day, consecutive or not, of his stay in Brazil, within a 12-month period; or (iii) on the date he obtains a permanent visa or a labor contract, if this occurs before the 184th day of his stay in Brazil, within a 12-month period.
Brazil also has at 31% rate for payroll tax and at sales tax of between 17% – 25%. These tax rates are quite high. Many Brazilians and US expats living in Brazil find it cheaper to periodically travel to the US and purchase goods, clothing and household items than to purchase those items in Brazil.
In addition, Brazil also has similar corporate tax rates similar to those in the US. The corporate tax rate starts at 15%, but there is a surtax of 10% on any income over BRL 240,000. This brings the highest corporate tax rate to 25%.
US citizens living in Brazil who have at least $10,000 in foreign financial accounts, such as a bank account in Brazil, have to file a FBAR, Foreign Bank Account Report. A FBAR also has to include accounts over which you have signature authority, and some foreign retirement accounts. The IRS can impose large penalties if you do not file the FBAR or file the FBAR the incorrectly. Make sure to ask your tax professional if you have any questions about the FBAR.
If you are living in Brazil and have a questions about your US taxes, feel free to send us an email at taxquestions@universaltaxprofessionals.com.
