The Brazilian tax year covers the period from 1 January to 31 December.
Residents must file a tax return annually by the last business day of April of the following year, and no extension of time is allowed. In case of a late filing, penalties will be assessed by the tax authorities.
Since individual income tax is due and payable monthly, this return will account for only minor tax adjustments and will serve to list assets and liabilities. While there is no tax on assets owned, the government uses the list to check if the increase in the taxpayer's net worth is compatible with the reported income.
Spouses may elect to file tax returns jointly or separately. If filed separately, income received jointly must be allocated to each spouse's return. Also, in the section pertaining to assets and liabilities, each spouse must show the corresponding items held individually. The value of jointly held assets/liabilities should be allocated according to ownership percentage or shown only on one spouse's return. The spouse not listing the jointly held assets/liabilities must declare that the items will be listed on the other spouse's tax return.
The head of a household may treat as a dependant a spouse or any dependant (up to 24 years old who fulfils the dependant's rules) who receives taxable income, since the pertinent amounts are included in the income tax calculation basis.
Payment of tax
Income tax is normally withheld at source, at rates varying from 0% to 27.5%, depending on the income bracket. The final liability is determined upon filing the tax return. Any difference between the amounts as determined by the tax return and that withheld at source or paid during the year by the individual must be paid or is refunded to the taxpayer. In case of any tax due, it must be paid to the Brazilian tax authorities at once or through up to eight monthly instalments, due on the last business day of April and in the succeeding months. In case the tax due is paid in instalments, interest must be considered monthly.
Taxes due on taxable capital gains arising from the sale of property must be collected through a tax voucher on or before the last working day of the month subsequent to sale in the case of resident taxpayer, or on the same day of sale in the case of a non-resident taxpayer.
If paid in Brazil, dividends are exempt from taxes whereas interest and royalties are taxed at source. If paid abroad, dividends and royalties are subject to taxation through the mandatory monthly income tax calculation whereas interest is taxable as capital gain. In both cases, the taxes due must be collected through a tax voucher on or before the last working day of the month subsequent to when the income was earned.
Tax audit process
Upon the electronic filing of an individual income tax return, the Brazilian tax authorities process it and release the payment of refunds. In case of any questioning, the taxpayer will be requested to provide the tax authorities with further clarification and/or support documentation.
Statute of limitations
The Brazilian tax authorities have up to five years, from 1 January of the year in which it is filed, to examine and question an individual income tax return.
Topics of focus for tax authorities
The Brazilian tax authorities tend to question taxpayers whenever a tax credit and/or substantial amount of deductions are claimed in an individual income tax return.