What is a ‘tax haven’ under Brazilian law?

Brazil has a sophisticated tax system. This makes structuring a transaction to minimise taxes a complicated task. Brazilian tax rules generally treat as “tax favoured or with privileged tax regimes” those countries or dependencies that:

• do not tax income or that tax at a rate lower than 17%; or

• do not grant access to information relating to the shareholding of legal entities.

Note that the definitions above do not apply for transfer pricing purposes. The rules relating to transfer pricing have their own definition of “privileged tax regimes”.

As part of Brazil’s fiscal controls, the Federal Revenue Department is tasked with preparing a list of those jurisdictions and special tax regimes that in its opinion meet the requirements above. The list binds the Federal Revenue Department in its dealings with taxpayers.

Jurisdictions where all entities are treated as ‘tax havens’

All entities in the following jurisdictions are treated as tax favoured:

American Samoa, Andorra, Anguilla, Antigua and Barbuda, Aruba, Ascension Islands	Bahamas, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands, Brunei	Cayman Islands, Champion of Italy, Channel Islands (Alderney, Guernsey, Jersey e Sark), Cook Islands, Curaçao, Cyprus
Djibouti and Dominica, French Polynesia, Gibraltar, Grenada, Hong Kong	Isle of Man, Island of São Pedro and Miguelão, Ireland, Kiribati	Lebuan, Lebanon, Liberia and Liechtenstein
Macao, Maldives, Mauritius, Marshall Islands, Monaco and Montserrat Islands	Nauru, Niue Island and Norfolk Island, Oman, Panama, Pitcairn Island, Queshm Island	Saint Helena, Saint Lucia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Seychelles, St. Martin, Solomon Islands, Swaziland
United Arab Emirates and U.S. Virgin Islands	Vanuatu	Western Samoa

San Marino, Singapore and Switzerland are among the countries that have been removed from the list above in the last five years. Brazil even signed a double tax agreement with Switzerland.

Jurisdictions where only certain regimes are treated as ‘tax havens’

The entities that operate in the following tax regimes are regarded as “privileged tax regimes”:

• Austria: holding companies without substantive economic activity;
• Costa Rica: entities under the free trade zone regime;
• Denmark: holding companies without substantial economic activity (see further below);
• Iceland: international trading companies;
• Malta: international trading companies and international holding companies;
• Netherlands: holding companies without substantial economic activity (see further below);
• Portugal: entities under the International Business Centre of Madeira regime;
• Singapore: entities that fall under differentiated rate regimes (see here);
• Spain: Entidades de Tenencia de Valores Extranjeros;
• Switzerland: holding companies, domiciliary companies, auxiliary companies, mixed companies and administrative companies whose tax treatment results in less than 20% in Brazilian corporate income tax (IRPJ), as well as the regime applicable to other types of legal entities which results in the incidence of IRPJ of less than 20% through rulings issued by tax authorities;
• United States: LLCs whose members are non-residents and not subject to U.S. federal income tax;
• Uruguay: SAFIs set up before 31 December 2010.

For the purposes of assessing whether the holding entities carry “substantial economic activity” in Denmark and the Netherlands, Brazil’s Federal Revenue Department will consider “when it has, in its country of domicile appropriate operational capacity for its purposes”. “Among other factors”, the authorities will consider “the existence of qualified own employees in sufficient numbers and adequate physical facilities for the exercise of management and effective decision-making”:

• for the activities carried out by the company to obtain its income from the assets it has; and

• for the management of equity to obtain income from dividends and capital gains.

How can a country be removed from the list?

On 18 October 2024, Decree 12,225/2024 was published. The Decree sets the criteria for removing a country’s classification as tax favoured or privileged where the country makes “significant investments” in Brazil and, by doing so, “foment the national development”.

When assessing whether a jurisdiction should be removed, the Brazilian government will take into account investments made by that country’s government in Brazilian federal bonds, companies or investment funds (the latter two via direct foreign investments as defined by the Central Bank of Brazil).

The investments must be:

• made directly by the foreign government, its government-controlled entities or its sovereign fund;
• be for a minimum term of five years; and
• be “compatible with the Gross Domestic Product of the investing country”.

For investments made directly into Brazilian companies or funds, those used to “increase fixed capital” and “aligned with sustainable practices” are prioritised.

As a final condition for removal from the list, the country must also provide full transparency about the ultimate beneficial oners of its legal entities.

Final Remarks

Care should be taken before making any decisions involving jurisdictions that the Brazilian Federal Revenue Department treats as a tax haven. There are very disadvantageous tax consequences at the Brazilian end when transactions are structured in ways that involves concentrating revenues in those jurisdictions.

Questions?

Contact me if you would like further information. My firm is ready to assist you.

Brazil Brazilian Federal Revenue Department Brazilian tax Foreign Direct Investment International tax OECD Receita Federal Tax Transparency

Last modified: 4 December 2024