For Brazilian tax legislation purposes, the following items can be deducted from an employee's annual taxable income:
- Dependants (a specific amount per dependant is established each year by the tax authorities). Note that according to the Normative Instruction published on 20 November 2017, as of the 2018 tax year, all dependants must hold a Central Provident Fund (CPF) number, regardless of their age, to be reported in the annual tax return and benefit from the corresponding deduction.
- Alimony payments, in Brazil or abroad, provided some requirements are met.
- Tuition expenses, in Brazil or abroad, limited to a certain specific amount established each year by the tax authorities (applicable to the taxpayer and dependants per year).
- Medical expenses (e.g. hospital, psychologists, dentists), in Brazil or abroad, are deductible (when not reimbursed), with no limits. Payments for medical insurance located outside Brazil are not deductible.
- Brazilian official social security contributions made by the individual.
- Private pension contributions (if the entity is located in Brazil) made by the beneficiary and for one's dependents, limited to 12% of gross taxable income.
Please observe that some deductions, such as those for dependants, alimony, and Brazilian official social security contributions are allowed on a monthly basis.
The taxpayer may also deduct from the tax due, and not from the calculation base, the following:
- Donation made to official government, state, and/or municipal child care entities and elderly fund, through a municipal fund.
- Certain qualified contributions/investments to cultural, audio-visual, and sports projects. Note, however, that the above deductions are limited to 6% of the tax due.
- Contributions made by the taxpayer to the official social security system on behalf of registered domestic employees (e.g. maids, house cleaners, drivers), within certain limits.
- Contribution to health programs related to cancer and mentally handicapped support (Pronon and Pronas), limited to 1% of the income tax during the calendar year, considering each program.
In lieu of the above itemised deductions, taxpayers may take the benefit of a standard annual deduction (20% of gross taxable income, limited to a certain specific amount established each year by the tax authorities). The option for a standard deduction is not allowed on exit returns or for those individuals who will offset losses from farming activities in the annual income tax return.
Note that all deductions must be claimed in the year they are incurred. They cannot be carried back and/or forward.
Individuals who receive income from work without an employment relationship may deduct the following from the income received:
- Payments made to third parties, provided they have an employment relationship and the respective payroll charges.
- Expenses necessary to produce the business' revenue.
- Investments and expenses to maintain the business.
Note that the items above must be included in a specific section of the Brazilian income tax return, and the individual must keep the documentation.
There are no existing provisions in Brazil for the deductibility of the following items:
- Interests expenses.
- Accrued expenses.
- Bad debt.
- Related party transactions.
- Contingent liabilities.
- Depreciation of fixed assets/amortisation of intangibles.
- Fines and penalties.
- Consideration on sale of business, such as personal goodwill.