Following a global trend of tax evasion, foreign currency drain and money laundering fighting, as well as complying with the foreign treaties entered into for such purposes, the Brazilian government has enacted this year a pack of rules aiming at combating the crimes referred to herein above.
The first rule was published in January of the current year (Law 13.254/16) and sets forth the exchange and tax regularization of non-declared amounts maintained by Brazilian residents abroad.
The above mentioned law, that has introduced the so called “Special Regime of Exchange and Tax Regulation” (RERCT – Regime Especial de Regularização Cambial e Tributária) (“RERCT”), aims at the voluntary declaration of resources, assets or rights of licit origin, non-declared or declared with omission or inconsistency as regards essential data, remitted or maintained abroad, or repatriated by individuals resident or domiciled in the country, as per the exchange or tax law.
As may be noticed, an essential requirement for the adherence to the regime is that the amounts had been licitly obtained (excluding, therefore, the possibility to regularize any amount maintained abroad which is a result of a crime). The origin shall be declared by the time of adherence to the regime.
The RERCT shall be applicable to individuals resident or domiciled in the country in December 31, 2014 that had been or still are owners or have title over assets, goods or rights in periods prior to December 31, 2014, even if in such date they do not own any resource or goods or rights, as well as to those nonresident by the time of enactment of the law, provided that they are residents or domiciled in the country, for the purposes of tax law, in December 31, 2014
In accordance with the referred law, the term to adhere to the RERCT is 210 days counted as from the regulation of the law by the Federal Revenue, which occurred on March 15 of the current year, upon the publication of the Normative Ruling no. 1.627/2016. Therefore, the deadline to adhere to the RERCT is on October 31, 2016.
For those opting to adhere to the RERCT, the amount declared and repatriated shall be taxed by income tax, as capital gain, at a tax rate of 15%, added of a fine of 100% of the tax paid by the declarer, which results in an effective tax rate of 30%. On the other side, at RERCT’s declarer’s benefit, the legislation sets forth the release of the tax credits arising from the violation of tax obligations and the reduction of 100% of default fines, voluntarily or isolated, and all legal burdens directly related to such assets and rights. It is important to highlight, however, that the tax and the fine shall be paid in one installment, at the moment of adherence to the regime.
However, possibly one of the greatest advantages for those opting to repatriate the assets and resources through the RERCT is the American dollar exchange rate for conversion to be applied for the purposes of such regularization. As per set forth in the Law, the declared amounts must be converted into American dollar and afterwards converted into Brazilian Reais using the exchange rate informed by the Brazilian Central Bank in December 31, 2014 (R$ 2.65). Therefore, considering the current pricing of the American currency in relation to the Brazilian currency, which is aprox. R$ 3.30, the declarers will have a significant economic advantage in the calculation of the taxes (as well as the fine) by virtue of the positive exchange difference.
The Brazilian legal environment is changing quickly as regards the fighting of tax evasion, foreign currency drain and money laundering and is mandatory for the individuals interested in such subject to follow up the developments in order to avoid or reduce eventual penalties.
Guarnera Advogados has a capable team of lawyers that is ready to support its clients in all these aspects. Do not hesitate to contact us.