Favored Taxation Countries and Privileged Fiscal Regimes in Brazil

by Walter Stuber

Brasil recently adopted new laws on taxation to implement many of the OECD guidelines to provide for transparency and assure revenue collection. Brazilian law now defines many new terms for tax purposes, and its recently updated list of favored taxation countries or dependencies has some interesting new additions and subtractions. Walter S. Tuber helps guide us through these changes as well as the new tax rate system for foreign investors.

The author writes:

Brazilian law defines "favored taxation country or dependency," "privileged fiscal regime," and "related party" for tax purposes.

Favored Taxation Country or Dependency. This term (país ou dependência  com tributação favorecida in Portugese) is used in the Brazilian tax legislation instead of the terms "tax haven" or "fiscal paradise" (paraíso fiscal). "Favored taxation country or dependency" means any country or dependency of a country that does not impose tax on income or, when imposed, is then deemed a low-tax country. A low-tax designation means that the applicable income tax rate is equivalent to any percentage varying between zero and 20 per cent (maximum).

Privileged Fiscal Regime. This term (regime fiscal privilegiado in Portugese) in Brazilian tax legislation means any jurisdiction that meets one or more of the following requirements:

(1) It does not tax income or where the maximum applicable tax income rate is below 20 per cent;

(2) It grants fiscal advantages to a non-resident individual or legal entity: (a) without requiring that substantial economic activity be made in the country or dependency; or (b) conditioned to the non-exercise of substantial economic activity in the country or dependency;

(3) It does not tax the earnings obtained outside its territory or impose a maximum applicable rate below 20 per cent to such earnings; and

(4) It does not permit access to information regarding the capital stock structure, ownership of assets or rights, nor of the economic transaction entered into between the parties.

All these percentages may be reduced or changed at any time by the Executive Branch. This concept is provided for in article 23 of Law No. 11.727, of June 23, 2008, which approved new wording for articles 24-A and 24-B of Law 9.430/96. Article 30 of Law 11.941/2009 clarified that it is not necessary to comply simultaneously and cumulatively with all the requirements listed above, and that it is sufficient to comply with only one for a country or dependency to be treated as a privileged fiscal regime. [footnote omitted]

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Walter Stuber is the founding partner of the law firm of Walter Stuber Consultoria Jurídica, in São Paulo, Brazil. He specializes in corporate law, mergers and acquisitions, joint ventures, banking and finance law, international financial transactions, capital markets, securities, project finance, foreign investments, privatization, arbitration, contracts, and international law. Mr. Stuber has practiced law in Brazil for many years, including as a partner with Pinheiro Neto Advogados. He is the author of many articles for Brazilian and international law journals, magazines, and newspapers.