The Withholding Tax is a type of a federal tax over income due on remittances from Brazil to foreign jurisdictions, among other situations. It is levied on income paid, credited or remitted to legal entities or individuals residing or domiciled in a foreign country by a local Brazilian entity.
The rates are in general 15% or 25% if the remittance is to a “tax haven” country. But some different rates can apply in certain cases, for instance when there is a tax treaty to avoid double taxation on income.
For investors, there are certain relevant exemptions to Withholding Tax, such as remittances abroad on: (i) interest and commissions related to credits obtained outside Brazil and destined to export financing; (ii) commissions paid by exporters to their agents abroad; (iii) requesting, obtaining and maintaining industrial property rights abroad; (iv) capital lease payments of capital goods, entered into with capital goods merchants, and into with entities domiciled abroad; and (v) amounts corresponding to hedge operations to cover risks of variations in the international market of interest rates, currency parity and commodity prices.
Given that Brazil has a complex tax system, it is important to understand circunstances and transactions in which tax exemptions apply.