Brazillian IRS publishes Normative Instruction regulating the taxation of investments abroad


In brief

On March 13th, 2024, the Brazilian IRS published Normative Instruction 2.180/24 (“IN 2.180/24”), which provides for the taxation of income earned by individuals resident in Brazil from non-interest-bearing deposits abroad, foreign currency held in kind, financial investments, controlled entities and trusts abroad, as well as the option to update the value of assets and rights abroad.

The long-awaited IN 2.180/24 regulates Law 14,754/23, which was passed on December 12th, 2023 and brought important clarifications regarding the taxation by Income Tax of individuals (IRPF) with assets abroad.

More details

Updating the value of assets and rights abroad

  • Individuals may update the value of assets and rights abroad to market value on December 31st, 2023 at the rate of 8% on the difference between the updated value and the acquisition cost.
  • The deadline for updating assets and rights abroad began on March 15th, 2024 and ends on May 31st, 2024.
  • In addition to paying the individual income tax (“IRPF”) at the rate of 8%, the taxpayer must submit, as regulated by IN 2.180/24, a Option to Update Assets and Rights Abroad Return – ABEX, available electronically at the e-CAC Virtual Service Center.
  • The option to update the value of assets and rights will only become effective once all the conditions set out in the normative instruction have been met. Assets or rights that have been sold, written off or liquidated before the date on which the option is formalized cannot be the subject of the update option.

Foreign Currency in kind

  • The exchange variation of foreign currency in kind will not be subject to IRPF up to the limit of currency disposal in the calendar year equivalent to US$ 5,000.00 (five thousand dollars).
  • Capital gains from the sale of foreign currency in kind are subject to progressive tax rates of 15% to 22.5%.
  • The calculation and payment of tax due on capital gains on the sale of assets and rights must be made separately from other taxable income received in the month.
  • The tax levied on capital gains is not offset against the IRPF subject to annual adjustment and reported in the DAA.

Financial investments

  • Virtual assets and financial arrangements with virtual assets will be considered to be located abroad, regardless of the location of the issuer of the virtual asset and the financial arrangement with the virtual asset, when they are custodied or traded by institutions located abroad.
  • Virtual assets and financial arrangements with virtual assets, including digital portfolios with income, are considered Financial Investments, when they are: (i) the digital representation of another financial investment abroad, or (ii) in the nature or characteristics of financial investments.
  • Insurance policies whose main value and proceeds are redeemable, jointly or separately, by the insured or their beneficiaries, are considered financial investments.
  • Offsetting  of losses on financial investments abroad will be made only once, at their nominal value, without monetary correction or updating of any kind.

Controlled foreign entities

  • Foreign insurance policies whose principal or proceeds are redeemable, jointly or separately, by the insured or their beneficiaries, when the investor is allowed to define or influence the investment strategy, are considered controlled entities.
  • The controlled foreign entities balance sheet must be signed by accountants legally qualified in IFRS or BR GAAP.
  • The controlled foreign entity’s balance sheet should identify the results obtained as a result of participation in other entities.
  • Profits accumulated up to December, 31st, 2023 must be identified in a specific profit reserve account.
  • The results of indirect controlled foreign entities that are not covered by the annual taxation regime must be kept on the entity’s balance sheet.
  • The Normative Instruction maintained the transparency treatment for tax purposes for trusts abroad, as well as the liability rules addressed by Law 14,754/24.

Tax transparency

  • Possibility of opting separately for the tax transparency regime and updating the value of assets or rights for direct and indirect entities.
  • Amounts in the form of profits distributed or arising from the write-off, liquidation or return of invested capital that have already been taxed under the tax transparency regime will not be taxed again when the credit is paid out.

Lastly, IN 2.180/24 revoked SRF’s Normative Instruction 118, from year 2000, which provided for the taxation of capital gains arising from the sale of assets or rights and the liquidation or redemption of financial investments acquired in foreign currency, and from the sale of foreign currency held in kind, owned by individuals.

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