Double taxation refers to income tax being paid twice on the same source of income. Double taxation occurs when income is taxed at both the corporate level and personal level, as in the case of stock dividends. Double taxation also refers to the same income being taxed by two different countries.
The text of the Agreement, which had already been approved in Switzerland in 2019 by the Council of States and the National Council, was approved in Brazil both in the House of Representatives, on March 5, 2020, and in the Federal Senate, on February 24, 2021, and now depends only on publication by means of a Presidential Decree to start producing legal effects in Brazil.
Eliminating uncertainties and distortions and encouraging the flow of investment between the two countries, among which we highlight:
- a) Inclusion of the following Brazilian taxes IRPJ; IRPF, and CSLL – which is expressly provided for in the Agreement – and the recognition on the Swiss side of the inclusion of cantonal taxes in its scope;
- b) Besides aiming to avoid double taxation and possible double non-taxation, and containing a general anti-abuse clause, the Agreement includes both transparent entities and collective investment vehicles;
- c) Although until now dividends have not been taxed at source in Brazil, the Agreement includes a provision that reduces to 10% the withholding tax on dividends paid to the beneficial owner of a company that holds at least 10% of its capital;
- d) With regard to interest, it determines the reduction of the IRRF rate to 10% on interest on loans granted for a minimum term of 5 years, granted by banks for the purchase of equipment and/or investment projects;
- e) Royalties are also now subject to the reduced rate of 10%, except for those arising from the use, or right of use, of industrial and commercial trademarks; and
- f) Technical services were given a specific definition, which no longer includes services of an administrative or scientific nature. The IRRF rate here has also been limited to 10% – lower than the general Brazilian rule, which provides for a rate of 15%.
The tax team of Stüssi-Neves Advogados are following closely the publication by Presidential Decree and are available to answer any questions regarding the Agreement.
Stüssi-Neves Advogados was founded in 1977. The law firm consists of some 30 lawyers, distributed between our offices in São Paulo and Rio de Janeiro on a basis of around 50-50.
Our clients are mainly companies of European and Japanese origin, who operate or intend to operate in Brazil directly or through subsidiaries or partnerships.