Jayme Petra de Mello Neto
Lawyer at Marcos Martins Advogados
With an unstable national economic and political scenario, many Brazilians are stepping up their investments abroad. And while before the bets were only on the financial market or, at most, on buying summer properties, today many are betting on starting companies in other countries in order to diversify their sources of income.
Data from the Central Bank shows that total financial investments outside the country amounted to the equivalent of US$61.6 billion between January and August this year alone – an increase of 44% compared to the whole of 2020. A large part of this phenomenon is due to the increasing legal certainty in these international transactions.
Nowadays, both individuals and companies have easy access to foreign investments. And there are many options. There are both those looking for financial investments and those setting up an operation outside Brazil. In these cases, we have seen both situations of companies looking to outsource their production to low-cost countries such as China, India, Indonesia and Pakistan, and those created to generate local wealth.
In this sense, we have seen many children, grandchildren and even great-grandchildren of European immigrants returning to the country of origin of their ancestors in order to invest in extremely elite markets, such as luxury or gourmet products. In most cases, the aim is personal satisfaction and generating extra income, without doing any kind of business with Brazil.
Regardless of which option you choose, it is essential to have specialized help. Investing abroad can be very attractive, but you need to ensure that your operations are legitimate in order to avoid problems with the IRS. You need to prove the lawful origin of the money and make the appropriate declarations for income tax purposes, to avoid future problems. This is essential to ensure that these operations are not used to launder money from drug trafficking or sexual exploitation, for example.
Despite the attractiveness of these investments, it is worth noting that the second phase of the tax reform intends to eliminate some tax advantages, seeking to institute the so-called automatic taxation regime for profits earned by entities controlled by individuals and located in tax havens. These companies are often used by individuals who are tax residents in Brazil as offshore asset holdings.
Under automatic taxation, the positive results earned by the offshore entity must be subject to taxation in Brazil on the date of the balance sheet in which they were calculated, according to the progressive IRPF rates of up to 27.5%, regardless of their actual distribution.
As the rules change frequently, anyone wishing to start their journey in foreign investments, whether as an individual or as a company, should be well advised and avoid options that appear too beneficial, with high legal risks behind them.
These operations require specific knowledge of both the laws of Brazil and those of the country in which you intend to invest. The process requires compliance with obligations to the Central Bank, the collection of all financial information for the Internal Revenue Service and, above all, proper proof of the origin of the funds to be used.
Continuous monitoring of these operations is also essential, after all, many laws are changed frequently, both here and abroad. You must always be aware of and up to date on any changes to the rules. With all these precautions, you can achieve a much safer investment, focusing mainly on diversifying your assets.
