Opinion – Marcia Dessen: Understand how the definitive taxation regime works

The definitive taxation regime, also called exclusive taxation at source, is very common, although investors may not recognize it as such. It means that the withholding of the tax at source was made definitively, and the Federal Revenue Service is not entitled to charge additional tax in the annual return, nor the taxpayer to request a refund, even if it is exempt.

In the DIR-PF, income taxed exclusively at source will be entered in a specific form that does not communicate with the taxpayer’s taxable income.

Generally, financial investments receive this tax treatment, the investor does not have the possibility to make choices. The only exception is pension plans, which, in addition to this regime, allow the taxpayer to choose the taxable regime, discussed in last week’s column.

As I did in the previous column, let’s speak clear Portuguese, respecting the concepts of the Federal Revenue and explaining the regimes as they should.

In this taxation regime, the rates are defined according to the accumulation period, from 35% (up to two years) to 10% (from ten years onwards). It does not depend on the taxpayer’s income range, as in the taxable regime.

It is important to note that the time will be counted from the date of each deposit. If the investor is willing and able to wait ten years, he will benefit from the lower rate attributed to investments subject to tax. It only loses to the exempt applications.

Opting for this regime is irreversible. It will not be possible to change the regime through portability, for example.

calculation basis

The calculation basis is the same as for the taxable regime. The tax amount depends on the product, VGBL or PGBL (and similar). In the case of VGBL, the rate is levied on earnings. In the case of PGBL, which allowed the deferral of part of the Income Tax due in the year in which the contribution was made, the rate is levied on the total amount of the redemption or income benefit.

Who cares

The definitive taxation regime is suitable for those who can wait ten years. The investor forgoes liquidity to reduce the tax burden. It is especially interesting in the case of the PGBL and similar plans that allow for the deferral of tax on the value of the contribution. The taxpayer exchanges the 27.5% rate, for example, for the 10% rate, ten years later.

The possibility of redemption before the deadline is admitted. However, the tax rate will be punitive. Thus, it is important to opt for this regime only when the investor has other short-term investments, exempt, or with 15% taxation, the rate applicable to variable-income investments, and to fixed-income investments, from two years onwards.

The investor who is interested in contracting this tax regime must clearly express this option when joining the plan. When the taxpayer fails to choose the tax regime, the insurer adopts the taxable regime.

Curiosities about this regime: in the event of the holder’s death, the maximum applicable rate will be 25%. Non-resident investors will always be taxed definitively, cannot opt ​​for another regime and will pay tax of 15%, if VGBL, and 25%, if PGBL. If resident in a tax haven, 25% in both cases.

In the taxable regime, discussed last week, nothing changes in the event of the death of the holder; the scheme applies to heir beneficiaries.

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