Tax | 3 Points on Taxation of Capital Gain in Equity Sales in Brazil

Brazilian and foreign investors should pay attention to the taxation of capital gains on the sale of their equity participation in companies.

1. If a Foreign Company Sells Equity in a Brazilian Company: The capital gain realized by a company headquartered abroad as a result of the sale of equity interest in a company headquartered in Brazil is subject to income tax, by applying rates progressive rates of 15% (up to BR$5 million), up to a higher rate of 22.5% on gains exceeding BR$30 million.

Cases in which Brazil has treaties to avoid double taxation, which limit taxation to 15%, should be observed, as for example with Portugal.

2. If the Selling Foreign Company Is Domiciled in a Tax Favorable Jurisdiction: If the selling company is domiciled in a tax favored country or dependency, the taxation becomes 25%, such as the British Virgin Islands, Cayman Islands and Hong Kong, among others.

3. If a Brazilian Company Sells Equity Interest: The capital gain resulting from an investment made by a Brazilian company shall be taxed in accordance with the tax regime to which the Brazilian company is subject.

There are two tax regimes for mid to large companies in Brazil.

If it is the presumed profit, the differentiation between permanent or temporary investment must still occur. This classification is not necessarily related to the term, but to the objective of the investment. It is temporary speculative investment in stocks, for example, whose objective is to benefit from the appreciation of the stock.

On the other hand, the investment is permanent when it is not expected the income from the appreciation of these shares in the market, but the income produced by the operations of the investee company or by the operational improvement of the investing company.

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