Brazil has a foreign tax credit system that allows taxpayers to receive a one-way credit against Brazilian income tax for foreign taxes paid on non-Brazilian income.
The foreign tax credit applies to income taxes levied in countries (jurisdictions) with which Brazil has a ratified double taxation treaty or income taxes levied by countries whose legislation provides for reciprocity in income tax paid to the Brazilian government, provided that some requirements are met.
The foreign tax credit cannot exceed the difference between Brazilian income tax calculated excluding foreign income and Brazilian income tax calculated on a tax base that includes foreign income. There are no general tax credits that can be claimed in Brazil.
Brazil has concluded double taxation agreements with the following countries to reduce or eliminate double taxation: Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Peru, Philippines, Portugal, Russia, Singapore, Slovak Republic, South Africa, South Korea, Spain, Sweden, Switzerland, Trinidad & Tobago, Turkey, Ukraine, United Arab Emirates, Uruguay and Venezuela.
Brazil applies the principle of universality of taxation, which means that the world income of the resident or national of the country is taxed.
The double taxation treaties signed by Brazil usually follow the model of the OECD – Organization for Economic Cooperation and Development and are largely aimed at mitigating or eliminating the effects of international double taxation. Agreements that Brazil has acceded to lowering the withholding tax rates are very rare.
Historically, Brazilian tax treaties have generally been based on mutual exclusivity / waiver rules by both parties. This regulation is usually done through the exemption method so that such income is only taxed by the country in which the income is earned. In some cases, however, the Brazilian treaties also provide for the avoidance of double taxation through the credit method, whereby the resident’s income is taxed by the country in which it is generated but a credit is assigned to the resident, e.g. that in the country of Source of payment tax paid.
However, if there is no tax treaty between Brazil and another country (ex: USA), the standard position is that a taxpayer, like an American citizen, is taxed worldwide. In this case, he may still be able to claim unilateral tax relief for the foreign tax he has paid. Otherwise, the Brazilian authorities have already officially recognized the reciprocity of tax treatment, which allows the taxes paid in the USA, Great Britain and Germany to be offset against the taxes due in Brazil on the same profit.
Brazil also has totalization agreements with several countries for the purpose of abolishing double social security. Double social security is a situation that occurs when a person from one country works in another country and is required to pay social security taxes in both countries on the same income. The countries with which Brazil has such a treaty are: Ibero-Americano Multilateral Agreement: Argentina, Brazil, Bolivia, Chile, Ecuador, El Salvador, Spain, Paraguay and Uruguay; Mercosul (Southern Common Market Agreement): Argentina, Paraguay, Uruguay and Venezuela; Belgium; Canada; Cape Verde; Chile; France; Germany; Greece; Italy; Japan; Luxembourg; Portugal; South Korea; Spain; Switzerland; and USA.