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Provisional Measure changes rules for Brazilian investments abroad 

The Provisional Measure (MP) #1,171/2023, published on April 30, 2023, brought relevant changes regarding the rules for the Brazilian Individual Income Tax (IRPF) regarding income earned from financial investments, controlled entities and trusts located abroad of ownership of Brazilian residents.

Starting in 2024, in addition to the Annual Income Tax Report, individuals must report separately from other income and capital gains, the income from capital invested abroad, in the modalities of financial investments, profits and dividends of controlled entities and assets and rights subject to trust.

The main aspects of the referred MP are the following:

I - Financial investments (Article 3):
• Progressive rates from 0% up to 22.5%
• Taxation through the cash basis method
• Exchange rate variation taxation

II – Controlled Companies (articles 3 and 6): 
• Progressive rates from 0% up to 22.5%
• Profits generated from 01/01/2024 will be taxed at the end of each year
• Profits generated until 12/31/2023 will be taxed only on the availability, and legal exceptions may apply
• Losses generated as of 01/01/2024 may be compensated

III – Trust abroad (articles 7 to 9): 
•  Assets and rights declared in the founder
•  Transfer to beneficiaries treated as a donation
•  Assets and rights taxed at the founder’s location, according to its nature.

IV – Update of the value of goods and rights located abroad (articles 10 and 11): 
•  Assets and rights abroad reported in Individual Income Tax Report may have the updated market value considering the date basis of 31.12.22
•  Taxation on the gain will be at 10%, and the tax must be paid depending on the option of the taxpayer (Nov/23 – May/24)
• Gain will integrate additional acquisition cost
•  Possibility of choosing the good or right updated
•  Future distributions will reduce the cost of acquisition, without new taxation

Regarding the effectiveness, although the text of the MP brings its validity to from January 1, 2024, we emphasize that its scope would be for the Individual Income Tax Report of 2024, calendar year 2023.

Finally, considering its nature as a Provisional Measure, such dispositive may be converted into law within 120 days of its publication.