Taxation Of The Capitalisation Of Brazilian Companies With Intangibles By Non-Residents

On the 24th of October 2016, Brazilian tax authorities have issued a ruling (ADI/RFB 7/2016) determining the levy of Withholding Income Tax (WHT) and Contribution of Intervention on the Public Domain (CIDE), at respective rates of 15% and 10%, upon the payment into share capital of Brazilian companies with intangibles, such as technology (know-how), software and trademark, when made by non-residents.

Important to note that this ruling consists of a change on the authorities' past understating, which used to consider these types of capitalization as exempt from any sort of taxation.

Thus, this sudden alteration of interpretation by the tax authorities reflects the volatility of the Brazilian tax legislation and could cause a negative impact on the inflow of technology into the country and also of foreign investment in general terms, which, on the contrary, should be deeply incentivized, for obvious reasons.

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