Taxable income tax and allowed deduction
«Taxes in Brazil
To determine how much income tax to pay, taxpayers must first calculate the taxable income (which is then used to calculate the tax due).
Taxable income consists of taxable revenues, of which the allowable deductions are excluded.
Knowing all the specifics is not easy, but the general guidelines are pretty clear.
Most taxpayers in Brazil prepare their own income tax declarations; the software which Receita Federal makes available is very helpful, with may self-correcting features.
See a complete Questions and Answers about Individual Income Tax, page maintained by the Federal Revenue Service in Brazil.
Salaries (compensation for work) are taxable, regardless of the their names. There was a time when "gratifications", "bonus" and other disguised salaries were not taxable (particularly in the public service, and even more particularly among strong classes such as Judges and the Military), but it's not the case today.
Some perks are also taxable, if such perks may be considered indirect salary; for example, if a company pays the rent of an apartment to top executives, then the rental is considered salary and must be declared by the executives.
Severance payments may or may not be taxable. Generally speaking, severance payments which are mandatory by law are not taxable, whereas payments by liberality are taxable. Often times, however, the Courts which decide whether a severance payment is due also determines whether the taxes are due.
Income from stocks, bonds and other financial funds are taxable.
The exception used to be the Savings Accounts (Caderneta de Poupanša), which was totally tax free until 2009; in 2009, the Government passed a law taxing savings accounts with balance over a certain limit (about R$ 50.000, or around US$ 25.000).
Incomes from real estate (mostly rentals) is taxable.
Profits and dividends paid by corporations to individuals are not taxable.
The corporations must pay income on their profits, but the dividends which are distributed to share holders are not taxed.
An individual who owns (solely or in society) a company will not pay tax on the profits he gets from the company (the company, however, must pay all taxes before distributing profits).
Profits obtaining by trading shares are taxable.
A deduction is allowed for each dependent; in 2009, the deduction was R$ 144.20 per month (or R$ 1.730,40 per year) per dependent.
Several people may be declared as dependent: spouse, sons, parents, brothers, grandchildren, etc. The dependent must be financially dependent of the taxpayer. In certain cases, a judicial order is required to prove dependency.
Children are dependent until age of 21; in case they are in University or technical school, dependency is extended to age 24.
If the dependent has any kind of own income (e.g., a father who receives pension), then all income of the dependent must be declared by the taxpayer.
Medical expenses are deductible.
There are no limits regarding the amounts, but there are restrictions regarding the health specialty (e.g., most plastic surgeries are not recognized as health therapy, hence expenses with them can not be deducted).
Prostheses, when prescripted by doctors, are deductible. Medicines are not deductible.
Education expenses are deductible, but only to a limit of R$ 2.592,29 per year (about US$ 1.200 per year) per taxpayer or dependent. A typical middle class school or a typical private college costs much more than that (see Education in Brazil).
Education includes all levels, from kindergarten to doctorate. Extra courses, such as languages, computer courses, etc, are not deductible.
Education material (books, instruments, etc) are not deductible.
Alimony is deductible.
The receiving party, however, must pay taxes on the alimony.
Alimonies must either be enforced by a Judge, or, if there is an agreement between the parties, such agreement must be registered in a public notary.
Expenses necessaries to obtain income are deductible.
For example, a lawyer or a lawyer who pays taxes as individual taxpayer can deduct expenses with office rentals, trips to talk to customers, etc.
The term in Portuguese to describe such expenses is Livro Caixa (Cash Book).
Payment of Income tax
Even though income tax is calculated in yearly basis, individuals must pay income tax monthly.
To calculate the income tax to pay, taxpayers must add all taxable revenue, discount allowable deductions and apply the tax income table.
In many (most) occasions, when someone receives income, the applicable tax is retained by the paying source and paid directly to the Government; this applies, for example, to salaries and interest paid on financial investments.
So, if an employee has a gross salary of R$ 10,000 and must pay R$ 1,000 in income tax (this is not actual value), then the company will pay R$ 9,000 to the employee and R$ 1,000 to Receita Federal; the R$ 1,000 retained is called Tax Retained by Source (in Portuguese, Imposto Retido na Fonte).
As this table shows, most of the income tax due by individuals is paid the respective sources.
Annualy, not later than the last day of April, taxpayers must present an income tax declaration.
In the declaration, taxpayers add up all the monthly incomes, deduct all allowed expenses and calculate tax based on the yearly table.
Read more about Income Tax Declaration.
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