Costa Rica, Madeira, and Singapore have been removed from the list of “tax havens” in Brazil. The changes were published in the official gazette in late December 2017.
The removal of Costa Rica, Madeira, and Singapore from the list of tax havens represents that concerning remittances from Brazil to recipients in those jurisdictions, the applicable tax rate of the Brazilian withholding income tax will be, in most instances, 15% (and not the 25% withholding tax rate that applies with respect to remittances made into tax havens).
However, while these three jurisdictions generally were declassified as tax havens, certain specific regimes within those jurisdictions are listed as “privileged tax regimes” including:
Transactions undertaken with entities subject to privileged tax regimes must observe the transfer pricing rules in Brazil—regardless of any corporate relation between the parties. The transfer pricing rules apply in addition to any stricter rules and limits of interest deductibility (thin capitalization).
There are adverse tax consequences to Brazilian multinationals investing abroad in legal entities subject to privileged tax regimes—including the prohibition of the consolidation of results; no taxation of the profits of affiliated companies under the cash basis regime; and no deduction of presumed tax credits in the amount of up to 9%.
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