U.S. EXPAT TAX GUIDE – BRAZIL
Do US expats living in Brazil have to pay US taxes?
Yes, if you are a US expat living in Brazil, you may need to pay US taxes, depending on your specific financial situation. Some expats will have tax obligations, while others might be exempt.
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Who qualifies for an exemption from US taxes?
US expats who qualify for the Foreign Earned Income Exclusion (FEIE) may not need to pay US taxes on their foreign income.
For instance, if you earn up to US$126,500 in 2024 while living in Brazil, you could exclude this amount from your taxable income by meeting the FEIE requirements and filing Form 2555.
How can US expats qualify for the FEIE?
To qualify for the FEIE, you must meet the following conditions:
- Foreign Income: You must have income earned from a foreign country.
- Establish Foreign Residency: You need to establish residency outside of the United States.
- Physical Presence Test: You must be physically present outside the US for at least 330 days during any 12-month period.
This 12-month period does not need to align with the calendar year—it could be from July 20th to July 20th of the following year.
Additionally, the 330 days outside the US do not have to be consecutive, offering flexibility in qualifying even if your time abroad spans different calendar years.
What happens if your income exceeds the FEIE limit?
If your income exceeds the FEIE limit of US$126,500, you may need to pay US taxes on the excess amount. For example, if you earn US$150,000, the taxable portion would be US$23,500 (US$150,000 minus the FEIE limit).
What types of taxes do expats in Brazil need to be aware of?
In Brazil, there are various types of taxes that can apply to expats, including income taxes, value-added taxes (VAT), and social security contributions.
How does individual income tax work for expats in Brazil?
- Personal Income Tax (IRPF): In Brazil, personal income is taxed at rates ranging from 7.5% to 27.5%, based on your income level. If you are an expat earning income in Brazil, this income may be subject to Brazilian taxes. You can avoid double taxation by using the FEIE or through the Brazil-US tax treaty.
- Deadline: Brazilian income tax returns must be filed by April 30 of the following year, and taxes can typically be paid in up to eight installments.
- Corporate Income Tax (IRPJ): If you own a business in Brazil, the corporate income tax rate is 15%, with an additional 10% surtax on income above a certain threshold.
- Deadline: Corporations may pay taxes quarterly or annually, with quarterly payments due at the end of March, June, September, and December. Annual payments are due by April 30 of the following year.
Do expats need to pay VAT in Brazil?
- ICMS (Tax on Goods and Services): ICMS is a state-level tax that applies to the sale and circulation of goods and services. Rates range from 7% to 25%, depending on the state and the type of product or service.
- Deadline: ICMS returns are typically due monthly, by the 15th of the following month.
- IPI (Tax on Manufactured Products): This is a federal tax on manufactured goods, with rates that typically range from 0% to 15% based on the product.
- Deadline: IPI returns are generally due monthly, by the 15th of the following month.
- ISS (Tax on Services): ISS is a municipal tax on services provided within city limits, with rates from 2% to 5%, depending on the municipality.
- Deadline: Deadlines vary by municipality, but ISS is commonly due on a monthly basis.
How do social security contributions work for expats in Brazil?
- INSS Contributions: Employees in Brazil contribute between 7.5% and 14% of their salary to social security, while employers contribute 20%. These contributions support Brazil’s social security system.
- Deadline: Social security contributions must be paid by the 20th of the following month, including both employee and employer portions.
Are there other taxes expats in Brazil should know about?
- PIS/PASEP and COFINS: These are federal taxes levied on a company’s gross revenues to fund social programs, typically paid on a monthly basis.
- IPTU (Urban Property Tax): This municipal tax applies to property ownership in urban areas and is usually paid annually, with some municipalities offering installment options.
Do Brazilian tax deadlines differ from US tax deadlines?
Yes, Brazilian tax deadlines do not align with US tax deadlines. While Brazilian taxes must be filed based on local regulations, US expats must also comply with US tax filing requirements.
For US expats, the federal tax return is due by June 15, with an option to extend until October 15.
How does the US-Brazil totalization agreement benefit expats?
The US and Brazil have a totalization agreement that helps individuals avoid paying social security taxes in both countries on the same income.
This agreement is separate from a tax treaty and deals specifically with social security taxes, including self-employment tax. If you’re self-employed in Brazil, you generally do not need to pay US self-employment taxes. For example, if you were self-employed in Argentina, you would need to pay US self-employment tax.
The agreement also determines which country’s social security system you contribute to, helping you avoid losing benefits by paying into two different systems.
How can US expats catch up on missed tax filings?
If you are behind on your US tax filings, you can use the Streamlined Filing Compliance Procedures to get back on track without penalties. This program allows expats to file their last three years of tax returns and their last six years of Foreign Bank Account Reports (FBARs).
The streamlined procedure is designed to help expats who have missed tax deadlines get back into compliance with the IRS without facing harsh penalties.
What are the common mistakes expats make with US and Brazilian taxes?
- Not Filing on Time: Many expats forget that they need to file both US and Brazilian tax returns. Missing deadlines can lead to penalties and complications.
- Ignoring Foreign Bank Account Reporting: If you have foreign bank accounts with a total balance over US$10,000, you must file an FBAR to report them to the US Treasury. This requirement catches many expats off guard.
- Misunderstanding the FEIE or Foreign Tax Credit: Some expats incorrectly apply the FEIE or do not properly calculate the Foreign Tax Credit, leading to overpayment or underpayment of taxes.
- Double Taxation Concerns: Expats sometimes assume they are exempt from all US taxes because they pay taxes in Brazil. However, without proper planning, they might be taxed in both countries on the same income.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
