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Law no. 13.254 of January 13, 2016 (Law no. 13.254/2016), which enacts the Special Tax and Currency Exchange Regularization Regime (RERCT), was published on January 14, 2016 on the Official Gazette and it is a result of the President’s sanction on Bill of Law 186/2015 approved by the Brazilian Congress last December, with 12 vetoes.
RERCT provides for the regularization of unreported assets of lawful origin, remitted, maintained abroad or repatriated until 31 December 2014 by Brazilian residents.
Taxpayers are granted a period of 210 days to start the regularization process, after the regulation of RERCT by the Brazilian Internal Revenue Service (expected to be published until March 15, 2016).
The regularized assets are subject to a tax rate of 15 per cent (income tax) and also subject to a penalty of 100 per cent. Considering the dollar exchange rate of 31 December 2014, and the current exchange rate, the effective tax burden is of approximately 20,05 per cent.
The RERCT allows eligible persons to regularize the reporting of assets remitted or maintained abroad in violation of Brazilian currency exchange and tax regulations, even if already repatriated, after the payment of a 30 per cent tax on their market value, that is,15 per cent of Income Tax and 15 per cent of Penalties. The market value of the assets shall be converted to Reais with the exchange rate from 31 December 2014, of BRL 2.6562. Furthermore, it is not mandatory to the eligible persons to repatriate their assets to Brazil.
Who can join RERCT?
The following persons are eligible for the benefits of the RERCT: (a) individuals who resided or were domiciled in Brazil as of 31 December 2014 even if they are not resident or domiciled at the time this law was enacted; or (b) estates of deceased individuals existing at that date.
Who cannot join RERCT?
Persons who (a) were not resident or domiciled in Brazil as of 31 December 2014; (b) individuals who have been convicted in criminal proceedings whose object is one of the crimes subject to this amnesty; and (c) holders of positions and public roles as directors or elected members of a board, their respective spouses, blood relatives or an in-law, up to the second degree or by adoption, at the time this law was enacted.
The RERCT targets assets (a) of lawful origin which, before 31 December 2014, were remitted or maintained abroad in violation of Brazilian currency exchange and tax regulations or (b) repatriated in violation to these regulations.
In order to apply for the RERCT, eligible persons must submit a Standard Regularization Statement to the Brazilian Internal Revenue Service (RFB), which must contain a description of the assets, their market value in Brazilian Reais, or, in case there is a lack of balance or the assets are no longer owned by the person submitting the statement, a description of the conducts targeted and the value of the assets held before 31 December 2014 accompanied by information to prove their identity, ownership and source, in a way that is still to be regulated by the RFB.
Assessment of amounts due
Applicants to the RERCT must:
(a) pay Income Tax calculated at the rate of 15 per cent; and
(b) pay a fine at the rate of 15 per cent, resulting in a combined percentage of 30 per cent.
Assets under BRL 10,000.00 per person, or the equivalent in US Dollars converted using the exchange rate of 31 December 2014, are exempted from the fine.
In compliance to the RERCT, taxpayers will receive full amnesty from the following crimes, namely:
- Tax evasion, including by means of omission of information, providing false or misleading declarations and documents;
- Currency evasion; and
- Money laundering in connection with the regularized assets.
The amnesty of the aforementioned crimes will extinguish all of the financial and currency exchange control obligations, both principal and secondary, including those which are merely formal, which would be enforceable regarding the assets being declared.