After years of negotiations, Brazil and the United Kingdom have signed a double tax agreement (“DTA”). It marks another step taken by Brazil to open its economy.
1. The DTA was signed on 29 November 2022 but it has not yet come into force (both Brazil and the UK still need to go through their respective domestic approval processes before it becomes binding). This is likely to take months – or maybe even several years.
2. The DTA contains various changes to OECD’s Model Tax Convention on Income and on Capital. Some changes are mere drafting improvements, while others are material.
3. One important change is the limitation of 10% over dividends that can be taxed in one country (instead of 5%) if the beneficial owner holds directly 10% (instead of 25%) of the company paying the dividends.
4. Another change relates to the maximum tax on interest, which is increased to 15% (instead of 10%) as a general rule. However, the interest will be reduced:
(a) to 7%, where: (i) the interest is paid to a bank or insurance company; (ii) the loan is for at least five years; and (iii) the loan is for the financing of infrastructure projects and public utilities;
(b) to 10%, where the interest stems from: (i) loans are made by banks and insurance companies to unrelated parties; (ii) from stock exchange-traded bonds or securities; or (iii) loans made to purchasers of machinery and equipment;
(c) to nil where the interest is paid: (i) to a pension scheme established by the other country; or (ii) to government bodies of the other country.
5. Further, unlike the Model Convention the DTA provides that royalties may be taxed at the source (they are limited to 10%).
6. Additionally, a specific provision addresses fees for technical services, where the maximum taxes at the source are not to exceed:
(a) 8% for the first two years after the DTA comes into force;
(b) 4% during the third and fourth year; and
(c) nil after the fourth year.
7. Finally, some articles of the DTA deal specifically with offshore activities (targeted at oil exploration), independent personal services as well as teachers and researchers.
More details about the Brazilian tax system can be found here.
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Brazil Brazilian Federal Revenue Department Double Tax Agreements DTA DTAs Foreign Direct Investment OECD UK United Kingdom
Last modified: December 7, 2022