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Did you know that a Brazilian company can return part of its capital to its foreign shareholder without paying tax? This is an interesting possibility for investment repatriation.
Pay Attention to the Rules
However, it is crucial to be careful, as this process involves corporate, foreign exchange, and tax rules that cannot be overlooked.
When is Capital Reduction Possible?
Capital reduction can occur in specific situations:
- Unrecoverable Losses: In the case of accumulated losses (deficits) that make the capital excessive.
- Excessive Capital: When the capital is excessive in relation to the company’s purpose, meaning it is disproportionate to its activities.
In these cases, the foreign shareholder can repatriate part of the investment.
Formalization and Registration
The return of capital needs to be formalized through an amendment to the articles of association or corporate contract. It is crucial that this amendment is properly registered with both the Board of Commerce (Junta Comercial) and the Brazilian Central Bank.
Step-by-Step for Capital Reduction
The process generally follows these steps:
- Corporate Resolution: The decision must be made in a shareholders’ or partners’ meeting.
- Publication of the Decision: The decision needs to be published to ensure transparency and allow for creditor opposition.
- 90-day Period: There is a 90-day period during which creditors may file objections.
- Registration with the Board of Commerce: The amendment to the articles of association or corporate contract is registered with the Board of Commerce.
- Update with the Central Bank: It is necessary to update the registration with the Central Bank (usually in the SCE-IED system) to reflect the new capital structure.
The Risk of Non-Compliance
Without following the legal procedures, the remittance of funds can be treated as a disguised distribution of profits. The result? Unexpected taxes!
Legal and Tax-Free Repatriation
The good news is that there is no taxation if the return is within the amount registered as foreign capital and is properly documented. The risk of taxation is high if the amount returned exceeds the registered amount or if the process is done without proper registration.
Therefore, it is possible to repatriate capital legally and tax-free, provided the process is properly handled.
If your company has a foreign shareholder and is considering a capital reduction, having specialized support can ensure all steps are correctly completed.
See you next time!