Brazil and the UK Established an Agreement to Prevent Double Taxes.

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Written by: Liez Comendador
Brazil and the UK Established an Agreement to Prevent Double Taxes.

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Significant progress in bilateral trade between the UK and Brazil occurred on November 29, 2022, when they signed a Double Taxation Agreement (DTA). Due to the Agreement, both countries will no longer be taxing revenue twice. 

By the tax laws of both contracting states, money obtained by or via financially transparent entities shall be recognised as income of a resident of a contractual state, according to an article of the tax treaty. A clause that addresses technical service fees is also based on the UN Model Double Taxation Convention.

The Treaty stipulates the following withholding tax rates for source-country taxation on specific categories of income when it is in effect:

1. Dividends

Dividends given to a firm that directly owns at least 10% of the payer company’s capital during the 365-day period that includes the dividend payment date shall be subject to a rate not to exceed 10%; in all other cases, a rate not to exceed 15% shall apply.
Interest

2. Interest

For loans given by banks and insurance companies in transactions involving unaffiliated parties, bonds or securities that are extensively traded on a recognised stock exchange or a sale on credit paid by the buyer, an interest rate of no more than 7% will be applied to interest paid to a bank or financial institution on loans granted for at least five years to finance infrastructure projects and public utilities; an interest rate of no more than 10% will be applied to loans granted by banks and insurance companies in these situations.

3. Royalties

The United Kingdom and Brazil levy withholding tax on payments of such royalties to an outsider at the exact rates as apply to interest withholding tax. Once more, the Treaty does not abolish this withholding expense; instead, it stipulates that withholding tax rates on royalty payments shall not excel 10%. (Presuming the recipient is the beneficial owner of the royalty). Even if this is less advantageous than the stance in many of the UK’s other double tax treaties, it is still better than the stance adopted in many of Brazil’s other double tax treaties.

4. Fees for technical services

Suppose the recipient is the beneficial owner of the fee, the Treaty stipulates that withholding tax rates regarding Fees for Technical Services shall not excel: 

  • First two years – 8%;
  • Third and fourth years – 4%
  • After the fourth year – 0%

British Embassy in Brasilia predicts that the Brazilian market will draw more significant investment from the British business community and make it easier for Brazilian companies to invest in the United Kingdom, leading to the development of jobs, innovation, and prosperity.

References

‘United Kingdom and Brazil Sign Agreement to Avoid Double Taxation’. 2022. GOV.UK: https://www.gov.uk/government/news/united-kingdom-and-brazil-sign-agreement-to-avoid-double-taxation

Deloitte | Tax@Hand’. 2022. Taxathand.com: https://www.taxathand.com/article/27246/Brazil/2022/Brazil-UK-double-tax-treaty-signed

Doak, Jenny. 2022. ‘UK/Brazil Double Tax Treaty: Analysis – Weil Tax BLOG’, Weil Tax BLOG: https://tax.weil.com/insights/uk-brazil-double-tax-treaty-analysis/

CIPP. 2022. ‘UK and Brazil Sign New Double Taxation Agreement’, Cipp.org.uk: https://www.cipp.org.uk/resource-library-2/news/uk-and-brazil-sign-new-double-taxation-agreement.html

Author

  • Junaid Usman

    Apart from being a partner at Legend Financial, Junaid is an expert on Business Tax including business management advisory services which has proven in the growth of company. He is a promising advisor with an ideology; "Any business success depends on the level of objectivity it maintains."

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