Israel – Brazil Tax Treaty

Business Activity in Brazil

Brazil, Latin America’s largest economy, excels in agriculture, renewable energy, and innovation. The country has a stable economy, supported by strong regulations that attract foreign investments in numerous industries, especially renewable energy.

Over the past half-century, Brazil has transitioned from being an importer to one of the world’s largest producers and exporters of food. Additionally, the nation boasts one of the lowest emissions and most sustainable electricity systems globally, ranking in the top 10 for both metrics.

Brazil’s power sector, primarily regulated by the government, is supported by a substantial regulatory and legal framework, long-term Power Purchase Agreements, and a balanced, cooperative effort between the private and public sectors. Furthermore, Brazil’s startup ecosystem has flourished since 2010, with significant growth in startups, venture capital, corporate ventures and innovation hubs, establishing Brazil as an innovative leader in the region.

Bilateral Agreements Between Brazil and Israel

• Double Taxation Agreement
• Free Trade Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Brazil regarding the avoidance of double taxation was signed in December 11, 2002 and entered into force on December 31^, 2005.

To read the agreement in English click here.

Residency for Tax Purposes in Brazil

Residence of an Individual

An individual is considered a resident for tax purposes in Brazil if it meets one of the following criteria:

• Brazilian citizens living in Brazil.
• Brazilian residents abroad for up to 12 months after leaving (if no exit process is filed).
• Naturalized foreign nationals living in Brazil.
• Foreign nationals with permanent or temporary work visas employed by a Brazilian entity from their entry date.
• Doctors with temporary visas under the “Mais Médicos” program from their arrival date.
• Foreign nationals with temporary visas without a Brazilian employment contract after 183 days in Brazil within a year.
• Nationals from Argentina, Paraguay, Uruguay, Bolivia, Chile, Colombia, and Peru with temporary residence when employment starts or permanent residence is achieved.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

According to Brazilian law, a company is tax resident if established in the country or if a foreign company opens a branch, a representative office, or an agency in Brazil, making them subject to the same tax regulations that Brazilian entities have to follow.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Brazil

Brazil’s Tax Authority is called Receita Federal do Brasil.

Income taxation: 0%, 7.5%, 15%, 22.5%, 27.5%

Taxation of companies and branches: 15%

VAT: Brazil applies 3 layers of VAT: IPI (Federal) – Varies 5% and 30%; PIS/COFINS (Federal) -3.65% or 9.25% and IMCS (State Level) – 17% and 20%

Capital gains tax: 15%, to 22.5%

Withholding Tax

Inheritance Tax and Estate Tax in Brazil

Transfers of money, property, and assets between individuals due to inheritance or donation are subject to the Estate and Gift Tax (ITCMD). As Brazil is a federation composed of 26 states and a Federal District, the tax varies from state to state, and its rate can exceed 8%.

Relocation to Brazil

Brazil offers numerous tax advantages and investment opportunities, making it an attractive destination for individuals or companies considering migration to South America. It is part of both a large national market and international markets. Brazil is home to a strong economy, and one of the world’s best infrastructures, featuring a 30,000-kilometer rail system, 1.5 million kilometers of roadways, 380 ports, and 2,463 airports. Brazil is well-equipped to handle freight and accommodate staff according to the business plans of foreign or new employees.

Brazil has the world’s tenth-largest Jewish community, respectively is home to 92,000 Jews[1]. The community actively participates in politics, sports, athletics, and business, and well-integrated as well into the Brazilian society.

Real Estate Taxation in Brazil

In Brazil, property taxes include an annual municipal property tax, which is set according to the market’s value. For example, in São Paulo the estate tax is levied at 1% for residential and 1.5% for commercial properties. While as, the municipal property transfer tax in São Paulo is 3% of the property’s market value or transaction price, whichever is the highest.

Transfer of Funds from Israel to Brazil

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Brazil

Most common types of Brazilian business entities include:

Limited Liability Company (LLC)

This type of business in Brazil can be established by two or more-unit holders or stockholders, who may be individuals or companies, nationals or non-nationals. There is no minimum capital requirement for establishing the company. Shareholders are responsible for the company’s debts only in proportion to the amount they have invested. However, if the company fails to pay its debts, all partners will be responsible. Control is defined by the number of shares.

Joint-Stock Company (JSC)

This business corporation can be formed with public or private capital, with at least two shareholders for small companies and three shareholders for large ones. Shareholders can be individuals or legal entities, Brazilian or foreign. No minimum capital is required, but shareholders must contribute 10% of the share price in cash. Voting power is based on the number of shares owned.

Eireli (Sole Proprietorship)

An Eireli is a Brazilian company named after its owner or its business purpose, with ‘Eireli’ added to the name. It is designed for sole ownership by a single individual, who can be either Brazilian or foreign. Once established, an individual can operate only one company of this type. The initial capital required is at least one hundred times Brazil’s highest minimum wage at the time of registration.

Incentive Laws in Brazil

Brazil offers incentives for economic activities and investments. Companies in Brazil can deduct foreign taxes from their income earned abroad. Approved investment projects receive exemptions from duties, excise taxes, and social contributions on imported equipment, along with faster depreciation and access to low-cost financing.

The Program for Investment Partnerships promotes public-private partnerships by funding infrastructure projects, supported by the Brazilian National Development Bank. Local governments provide tax advantages to boost regional growth, while federal regulations enable all Brazilian states to offer tax incentives, ensuring competitiveness for companies.

The Brazilian government has introduced a new bill for the Free-Trade Zones Legal Framework, including significant legislative changes. Companies that establish themselves in these zones will benefit from tax, exchange, and administrative advantages. The new law designates Free-Trade Zones as areas for the free exchange of goods with foreign countries.

Additionally, companies operating within Free-Trade Zones are eligible for tax breaks on the purchase of machinery, raw materials, and inputs used in the production of export goods.

Double Tax Treaties in Brazil