US Expat Taxes Explained: Filing Taxes as an American in Brazil
How Working in Brazil Impacts US Expat Taxes
You are going to be required to file US expat taxes no matter which country you live in, but how will they be affected if you’ve chosen to live in beautiful Brazil? It is important to understand how your US expat taxes are going to change with your move to Brazil, and to understand how you will be taxed by Brazil while residing there.
US Expat Taxes in Brazil
If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes. Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.
Who is a Brazilian Resident?
In Brazil, you are considered a resident from the moment you arrive if you are the holder of a permanent visa or temporary work permit. If you come to Brazil for other reasons and are in the country for more than 183 days (consecutive or not) in a 12 month period, you will also be considered a resident for tax purposes as of the first day that exceeds the 183-day period.
The Brazil Income Tax Rates
If you are a Brazilian resident, your worldwide income will be subject to personal income tax at a progressive rate that peaks at 27.5%. If you are a non-resident, you are responsible for taxes only on Brazilian income, and you are not required to even bother filing an income tax return until you become a resident.
For residents paying tax on worldwide income, the tax rates from the Secretariat of the Federal Revenue of Brazil are as follows:
|Earnings in Real (BRL- R$)||Rate Applicable to Income Level (%)|
|17,989.81 – 26,961.00||7.5%|
|26,961.01 – 35,948.40||15%|
|35,948.41 – 44,918.28||22.5%|
|44,918.29 and above||27.5%|
There are no regional or state income taxes in Brazil, though some municipalities will levy a service tax on businesses or real estate transfers (usually 2%).
For residents, capital gains are taxed at 15%. Taxpayers are not able to apply their losses against their other income, but have been able to net gains and losses from sales of securities on a Brazilian public stock exchange.
There are some capital gains that are exempt from tax, including unique real estate (that does not exceed R$440,000), sale of assets with prices of less than R$35,000/month, amounts from the sale of securities on the public stock exchange for less than R$20,000, or proceeds from real estate if they are re-invested in another real estate property within 180 days.
US – Brazil Tax Treaty
The US and Brazil do not currently have a tax treaty in place. This can negatively impact your US expat taxes while you are living in Brazil.
Brazil Tax Due Date
For corporate taxes, the fiscal year is the tax year. For individual income taxes, the taxable period is any given calendar month. You will also be required to file an annual tax declaration, with the tax rates being calculated to an annual average to make up for any fluctuations in monthly income. These returns must be filed by the last working day of April in the year following the tax year. Although payments are withheld on a monthly basis, taxpayers must pay annual taxes on income not subject to withholding, such as investments.
Social Security in Brazil
While Brazil has multiple Totalization Agreements, there is not one with the USA.
Brazilian social insurance taxes are paid by both employers and the employees. The rate ranges from 8% to 11% of a monthly salary. As of July 2017, the maximum contribution was R$381. Note that these contributions are deductible from monthly and annual income tax. Because there is no Totalization Agreement between Brazil and the US, you will also be required to pay into US Social Security. This is done before you get the foreign earned income exclusion, so you will have a cash expense on your US expat taxes.
Is Foreign Income Taxed Within Brazil?
If you are considered a resident of Brazil, your foreign income will need to be reported, and taxes will be levied on that amount. If you are not a resident, you are not required to pay taxes to Brazil on foreign income.
Other Taxes in Brazil
In addition to income tax on salaries paid, there are other forms of income that are taxed in Brazil.
- Non-cash compensation is considered taxable, including housing allowances, any services that were provided, or company cars.
- Brazil does not impose any sort of inheritance or wealth tax. However, certain states can choose to impose a gift, death transfer, or donation tax. An example of such a state is Sao Paulo, which imposes a gift or inheritance tax of 4%.
- Brazil has a tax similar to the value added tax (VAT) established in most countries, which in Brazil is called the ICMS. A general rate of 18% applies (for in-state circulation), as well as specific rates for certain goods (such as a 25% rate on luxury goods).
Saving on US Expat Taxes
With the many various forms of taxation that are applied to foreign nationals working and residing in Brazil, it is important that you apply all of the exclusions, deductions, and credits to your US expat taxes. Brazil is neither a tax haven nor a high-tax destination, but understanding your filing obligations will help minimize your taxes – both in the US and Brazil.