International REITs for Brazilians: Tax in Brazil and the U.S.

A Brazil resident who buys U.S. REITs pays 15% income tax in the annual adjustment on dividends and sale gains, under Law No. 14,754/2023 (Lei 14.754/2023). The U.S. usually withholds 30% of dividends, and Brazil is not on the IRS treaty list. Credit for that withholding in Brazil depends on a treaty or reciprocity (art. 4).

How does Brazil tax U.S. REITs bought by an individual?

REIT shares and units are financial investments abroad: art. 3, § 1, I, of Law 14,754/2023 includes shares of investment funds and equity interests, and item II includes dividends and gains from trading in the secondary market. The rule applies to individuals who live in the country.

Brazilian real estate funds (FIIs) have their own rules and are not covered in this article.

How much do the United States withhold on dividends?

For a foreign person, most U.S.-source income is taxed at 30%, withheld at source, with a reduced rate only if there is a treaty between the country of residence and the U.S. (IRS Publication 515). Brazil does not appear on the IRS list "United States income tax treaties A to Z." As a rule, therefore, withholding on REIT dividends is 30%.

Publication 515 treats the REIT as a "qualified investment entity" (QIE) and dedicates an income code to the dividends it pays. Capital gain distributions from a REIT may be subject to section 1445 withholding. They are treated as a dividend, without that withholding, when the distribution comes from shares traded on a regular U.S. market and the investor did not hold more than 10% of the REIT in the year before the distribution. The sale of REIT shares has its own rules in the same publication, and your broker tells you what it withholds.

Does tax paid in the U.S. reduce tax in Brazil?

Only in two cases. Art. 4 of Law 14,754 allows deducting from the individual income tax (IRPF) the tax paid in the country of origin if a treaty provides for the offset or if there is reciprocity of treatment for income produced in Brazil. Since there is no treaty with the U.S. on the IRS list, reciprocity remains, and its recognition should be confirmed with Brazil's Federal Revenue Service (Receita Federal) or an accountant.

Even when the credit applies, it has limits:

Because the standard U.S. withholding (30%) is higher than the Brazilian rate (15%), the limit in § 1 prevents deducting more than the IRPF owed on that income. If the credit is not accepted, the two taxes add up.

Is it worth investing in REITs through a U.S. holding company?

It depends on what you control. If you have the upper hand in decisions or more than 50% of the capital, the holding company is a controlled entity (Law 14,754, art. 5, § 1). Dividends and rents are outside own active income (art. 5, § 6, I, "c" and "e"), with exceptions that § 8 provides for interests in operating companies. A holding company that only receives REIT dividends has passive income, and its profit is taxed on December 31 when own active income is below 60% of total income or it is in a country with favored taxation (art. 5, § 5).

In the U.S., a foreigner's single-member LLC is a "disregarded entity" and may have to file Form 5472 when there are transactions with related parties. IRS instructions provide a US$ 25,000 penalty for failing to file on time (Form 5472 instructions).

To set up the holding company, see corporate structures, the Wyoming jurisdiction and the Delaware one. The article on LLC and trust shows how asset protection combines with the holding company, and the guide on how much an offshore structure costs helps compare costs.

What should you report to the Federal Revenue Service and the Central Bank?

Income from investments abroad and profits of controlled entities go on the Annual Adjustment Return, separate from other income (Law 14,754, art. 2). On the Declaration of Brazilian Capital Abroad (CBE), anyone whose total is US$ 1,000,000.00 or more in assets abroad on December 31 files the annual version, according to the Central Bank manual. Keep broker statements, withholding reports and proof of each transaction.

For the routine of filings, see the tax planning service and the compliance service.