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| Executive Travel: São Paulo |
Business Essentials
Daniel DelRe
03/01/2006
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Taxes and Capital Gains
All forms of businesses, whether privately held by
a single individual or publicly traded, pay corporate taxes. “In Brazil there
are no pass-through entities,” said Renata Neeser, a Brazilian employment
specialist in the New York law office of Fischer & Mandell. “For the
purpose of taxes, all businesses in Brazil are distinct from their owners or
shareholders.”
Businesses are subject to a 25 percent corporate income tax
plus an additional 9 percent tax for the Social Contribution on Profits. Capital
gains on securities investments and direct investments in Brazil are taxed at 15
percent. Dividends are not subject to capital gains tax. This includes dividends
paid by Brazilian-based subsidiaries of foreign companies. Foreign companies
commonly make loans to their Brazilian subsidiaries. Repayment of the principal
is not taxed, but the interest is taxed at 15 percent.
Noncitizens residing
and working in Brazil under a visa are subject to local income tax, as well as
income tax in their home country. The U.S. is not among the countries with which
Brazil has signed a bilateral treaty to avoid double taxation of individuals.
The IRS, however, provides some tax abatements for income tax paid abroad.
Sources: Central Bank of Brazil; Bovespa; Index Mundi; HSBC
Local Sources of Financing
Brazilian commercial laws allow corporations
and subsidiaries to sell shares on the São Paulo stock exchange. While it is
possible to list Brazilian depository receipts, like ADRs in the U.S., it hasn’t
been done. The local exchange is too small, as are the debt markets. While
foreign subsidiaries can sell bonds or borrow from banks, the interest rates
make this impractical.
For these reasons, Brazil’s financial markets remain
small relative to the county’s GDP. Credit extended to the private sector is
only 25 to 30 percent of GDP, versus 60 percent in neighboring Chile and 70
percent in many developed nations, according to the IMF.
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