Brazil Issues New Regulations on Withholding Tax Reporting
- Brazil
- 05/28/2010
- Azevedo Sette Advogados
Originally published in the May 25 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s official gazette of May 14 published Normative Instruction No. 1033/2010, which consolidates the regulations of the withholding tax return (Declaração do Imposto sobre a Renda Retido na Fonte, or DIRF) and requires the reporting of payments made outside Brazil, whether or not subject to withholding tax.
Historically, DIRF has been an annual tax return in which Brazilian companies report to the Federal Revenue Department (FRD) all domestic payments subject to withholding tax. The purpose of DIRF is to allow the FRD to cross-check payments with income reported by taxpayers and avoid misreporting or undue claims for tax refunds.
In addition to consolidating the rules of the 2010 DIRF, to be filed by the last business day of February 2011, Normative Instruction No. 1033/2010 adds a new requirement to report payments made to abroad nonresident beneficiaries, such as dividend and profit distributions, even if the relevant payment is not subject to withholding tax. The purpose of the new reporting requirement, according to FRD officials, is to allow more control and cross-checking of information related to payments made abroad. The new reporting requirements apply to all payments made during 2010 and subject to 2010 DIRF.
Instruction No. 1033/2010 requires that individuals and companies domiciled in Brazil and who proceed with any payment, credit, delivery, use, or remittance of values to nonresident beneficiaries must report such values and beneficiaries in the DIRF. Besides companies and individuals, reporting parties include, among others, state-owned legal entities, Brazilian branches and representative offices of nonresident legal entities, sole ownership companies, labor and business unions and associations, notaries, condominiums, managers and brokers of investments funds, and investments clubs.
The reporting obligation includes not only values subject to Brazilian withholding tax but also those subject to tax exemptions, reductions, and zero rates. Normative Instruction No. 1033/2010 expressly lists payments abroad that must be reported in the DIRF, as follows:
- investments in investment funds that trade sovereign debts;
- royalties and technical assistance;
- interest and commissions in general;
- interest on equity;
- rents and leases;
- investments in mutual funds and other collective investment entities;
- investments in stock, fixed, and variable income markets;
- international freights;
- private pension plans;
- remuneration of rights;
- audiovisual, cinematographic, and videophonic works;
- certain payments abroad associated with exports of Brazilian products, such as market research, rents and lease of space in trade fairs, commissions to agents, cargo storage, movement and transportation expenses, and interest, among others; and
- any other values considered as income or earnings of any kind by local regulations, with a few exceptions.
Reporting is waived for payments made during the year that do not exceed the current personal income tax bracket, that is, BRL 17,215.08 (about $9,283).
David Roberto R. Soares da Silva, tax partner, Azevedo Sette Advogados, São Paulo
