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jusbrasil.com.br
25 de Maio de 2018

Dual Residency and International Tax Planning

Paula Farias Advocacia, Advogado
há 2 anos

Dual Residency and International Tax Planning

“A dual-resident corporation is a foreign corporation that is created or organized in one jurisdiction but managed and controlled in a second jurisdiction. Generally, when a dual-resident corporation exists, the place where such corporation is resident for tax purposes depends on whether an income tax treaty is in effect between these two foreign jurisdictions.”

Foreknowing the fiscal residency of a company is important to identify its taxation. It happens because some costs change depending on which country it is based.

Brazil consider fiscal residency where the company has been set up. If a company was set up in any of twenty-seven Brazilian states, it is automatically recognized as a Brazilian company.

However, this is merely a common understanding. Many other countries adopt different comprehensions on this.

To exemplify this possibility we report a deal between Brazil and Netherlands.

For Brazilian law, as already mentioned, the fiscal residency is fixed by the place that the company was initially set up. When it turns to the Netherlands, a company’s fiscal residency can be considered not only by the physical jurisdiction of the plant, but also whereas the responsibility of the Board of Directors isin this country.

In order, considering that a Brazilian company has a branch in the Netherlands where all the decisions are taken, with five shareholders and three of them are Dutch, for both legislations, it is “dual-resident Corporation”.

Consider that the Dutch branch has made thousands of US Dollars in profits. When this money is sent abroad, will it be subjected for income taxation in Brazil, the Netherlands or both countries?

A solid tax planning, combined with the knowledge of bilateral treaties, ensures that the main goal of the company, the constant searching for profit within its legality is preserved.

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