Being aware of the basic aspects of taxation when realizing profits is absolutely essential for investors – individuals and companies. The moment and the way of selling equity can modify the tax burden on capital gains (difference between the purchase and the sale price).
The general rule for private individuals, residents and nonresidents in Brazil, is that capital gains from equity sales are subject to a withholding tax from 15 up to 22.5 percent rate, calculated and paid monthly. The tax rate is progressive – it increases as the taxable amount (capital gain) increases. Depending on the income range, the tax rate is 15% (up to R$5 million); 17,5% (from R$5 million to R$10million); 20% (from R$10 million to R$30million) and 22,5% (over R$30 million).
The progressive tax rate rules are also applied to foreign companies and local companies that opted for the Brazilian simplified taxation system (Simples Nacional). Nevertheless, if the nonresident company or individual is in a blacklisted jurisdiction (tax haven), the corporate tax /income tax rate will be increased to a fixed 25% tax rate. And it is important to notice that Brazil has an extensive list of tax havens, of 53 countries, such as Singapore, Costa Rica, Panama and Cayman Islands.
Brazilian companies are also subject to tax on their income earned by equity sales. As they are treated as ordinary income, they are subject to corporate tax (basic rate of 15%) and social contribution tax (that is levied at a general rate of 9%). For the Brazilian IRS, that capital gain must be included in their calculation basis, even though they are not considered in the company results according to the accounting rules.
At last, it is important to pay attention to the moment that the Brazilian IRS considers that the capital gain occurred, for tax and accounting purposes. Also, besides the progressive tax rates, there are exemption tax rules for low amounts (monthly), so it is interesting to consider realizing profits gradually.