How to report your Foreign Company in the Brazilian Individual Income Tax Return

viniciusegbc
Jul 2
2 min read

Reporting ownership in a foreign company—commonly referred to as an "offshore company"—in the Brazilian Individual Income Tax Return (DIRPF) requires attention to specific procedures outlined by the Brazilian Federal Revenue (Receita Federal), especially in light of recent legislation such as Law No. 14.754/2023 and Normative Instruction No. 2.180/2024.

Initial Reporting of Equity Interest

When a Brazilian tax resident holds an equity interest in an offshore entity, the total amount invested must be reported in the DIRPF under Group 03 – Equity Interests, using Code 02 (Shares or Quotas) or Code 99 (Other Equity Interests). The investment value must be converted to Brazilian reais (BRL) based on the exchange rate on the date of the capital contribution. This amount remains unchanged in subsequent returns unless there is a capital adjustment in the foreign company.

Additionally, the country of domicile must be indicated (e.g., Code 249 for the United States).

Recommended Asset Description Template:

“Equity interest in the company [legal name], domiciled in [country], with capital contribution made on [date], in the amount of [foreign currency], at the exchange rate of [exchange rate] on the date of contribution.”

If capital was contributed through direct wire transfers, the conversion should align with the foreign exchange contract. In cases involving multiple transfers, each must be itemized.

When the contribution is made using assets already abroad, there are two accepted methods of valuation: (i) market value, which may generate capital gains and trigger income tax, or (ii) historical cost, as allowed under Article 23 of Law 9.249/1995.

New Tax Regimes Introduced by Law 14.754/2023

As of the 2024 fiscal year, Brazilian tax residents must choose between two tax regimes for offshore structures:

1. Transparent Regime (Cash Basis)

Under Articles 8 and 11 of Law 14.754/2023, individuals may opt to treat the foreign entity as a transparent structure, reporting each underlying asset or right separately.

Key points:

The value of the participation in the offshore company is declared as zero on 12/31/2023.
Each underlying asset must be allocated a cost basis proportional to its share of the entity's total assets.
This option must be uniformly applied by all shareholders of the foreign entity.

2. Opaque Regime (Accrual Basis)

Alternatively, under Article 14, taxpayers may retain the opaque treatment of the foreign entity, updating its equity to market value as of 12/31/2023, and reporting future profits on an accrual basis.

Requires submission of the Abex Declaration via the Receita Federal e-CAC Portal.
Tax payment on the asset update must be made by May 31, 2024.
Financial statements must be prepared in accordance with Brazilian accounting standards (BR-GAAP), proportionally reflecting the taxpayer's ownership interest.

How E&G Can Assist

E&G offers full advisory services related to the reporting, tax treatment, and financial compliance of foreign entities for Brazilian tax residents. Our Brazilian offices provide: