Originally published on the march 12 edition of World Tax Daily (Copyrights Tax Analysts www.taxanalysts.com)
Brazil’s Federal Revenue Department has issued a normative instruction that regulates exporters’ ability to keep up to 30 percent of their export income in bank accounts held outside Brazil.
Brazil’s Federal Revenue Department has issued a normative instruction that regulates exporters’ ability to keep up to 30 percent of their export income in bank accounts held outside Brazil. Normative Instruction 726/07 was published in the official gazette on March 2.
Provisional Measure 315/06, converted into Law 11,371 of 2006, limits how export income held abroad can be used (for example, for capital and financial investments and the payment of the exporter’s own obligations). The new law expressly prohibits exporters from lending any funds kept outside the country.
Instruction 726 states that the maintenance of funds outside Brazil, as provided by Law 11,371, allows the Federal Revenue Department to access financial information of relevant foreign bank accounts. In practical terms, this means that taxpayers must waive their bank secrecy to keep export income outside Brazil. Misuse of funds kept abroad may result in a penalty of 10 percent of the funds’ value; this penalty is imposed in addition to other applicable taxes that may be assessed.
Instruction 726 also creates a tax return specifically related to funds kept outside Brazil (Declaração sobre a Utilização dos Recursos em Moeda Estrangeira Decorrentesdo Recebimento de Exportações, or DEREX). Individuals and companies that hold export income in foreign bank accounts must file a DEREX by the end of June of each year. The taxpayer must include in the DEREX information on the origin and use of export income kept abroad and income earned therefrom.
Information included in a DEREX must be segregated by month, country, currency, and financial institution. DEREX filers must also disclose account numbers and identify attorneys-in-fact, representatives, and agents outside Brazil that have powers to operate the accounts. Lack of or delay in filing a DEREX results in a monthly penalty of 0.5 percent of the funds kept abroad, up to a 15 percent limit.