Beware! Your investment abroad may be earning more than interest: taxes!

Devalued real. Stable US Dollar and Euro currencies. Leal insecurity. Brazil’s rating under critical views and with a grade below the desired levels. These are some factors that are pointing towards an investment abroad in a strong currency.

This path has been taken by many Brazilians. What they did not foresee was a tax on the valuation of their income even without accessing these values.

Last month, the Administrative Council for Tax Appeals (Carf) published a ruling surprising individuals who have investments outside the country and have tax residency in Brazil. In this case, it was sufficient that the income from financial investments was credited to the beneficiary’s current account and available for withdrawal for the capital gain to be determined and taxable. The Btazilian IRS considered the taxpayer omitted to declare such income which was taxable and the Carf validated such assessment.

The taxpayer sent funds abroad for financial investment in an investment fund. In his defence, he claimed that there had been no sale or liquidation of the investment and therefore the funds were not available for withdrawal. The withdrawal of funds from the investment fund would only be possible with the liquidation of the fund or with the redemption/amortization of quotas, which did not occur.

Carf ignored the taxpayer ‘s reasonable explanation and stated that at no time did the taxpayer provide evidence that the earnings credited to the fund were not available, which could have been proved by simply presenting the investment contract and the fund’s by-laws.

This is an alert for those who maintain foreign investments: all care is necessary, especially in the maintenance of documents that prove the regularity and nature of the amounts invested abroad.

Investing abroad can ensure the maintenance of the value in a strong currency and avoid fluctuations in the market regardless of Brazil’s credit rating. However, tax cannot be avoided. Right or wrong, tax is relentless.

By Marcela Leal Sammarone, associate at Candido Martins Advogados
tributario@candidomartins.com.br