What Is the Status of the US-Brazil Tax Treaty?

As of mid-2025, there is no comprehensive income tax treaty in force between the United States and Brazil. This requires individuals and businesses with cross-border activities to navigate the domestic tax laws of each country separately. While a new agreement to prevent double taxation was signed, it has not been ratified by the U.S. Senate and is not legally binding.

This follows a previous attempt in 1967 that also failed ratification, highlighting the historical complexities in reaching a formal agreement. As a result, U.S. persons with income from Brazil cannot use the potential benefits, like reduced tax rates, outlined in the proposed treaty. The tax relationship is governed exclusively by the internal laws of the United States and Brazil.

The Current Tax Landscape Without a Ratified Treaty

The absence of a ratified income tax treaty creates the risk of double taxation. Without treaty provisions to dictate which country has the primary right to tax certain types of income, both nations apply their default domestic rules. For U.S. persons receiving payments from Brazil, this means being subject to Brazil’s statutory withholding tax rates. Under current Brazilian law, dividend payments to non-residents are exempt from withholding tax, while interest and royalties are subject to a 15% rate.

For Brazilian residents earning income from U.S. sources, a similar situation exists. The United States imposes a 30% withholding tax on many types of U.S.-source income paid to foreign persons, such as dividends, certain interest, and royalties. Because no treaty is in effect with Brazil, this higher statutory rate applies.

To address double taxation unilaterally, the U.S. Internal Revenue Code provides the Foreign Tax Credit (FTC). This credit allows U.S. citizens and resident aliens to reduce their U.S. income tax liability on a dollar-for-dollar basis for income taxes they have already paid to a foreign government. The purpose of the FTC is to ensure that income earned in another country is not taxed twice.

U.S. taxpayers claim the FTC by filing IRS Form 1116. A constraint is the FTC limitation, which prevents a taxpayer from using foreign taxes to offset U.S. tax on U.S.-source income. The credit is limited to the lesser of the foreign tax paid or the U.S. tax liability attributable to the foreign-source income, ensuring the credit only offsets the U.S. tax on that specific income.

The Brazil-U.S. Social Security Agreement

While a comprehensive income tax treaty remains unratified, a Social Security Agreement, or Totalization Agreement, has been in force since 2018. This agreement is separate from income tax matters and deals exclusively with Social Security contributions and benefits. Its primary function is to eliminate dual social security taxation, which can occur when a worker from one country is sent to work in the other.

The agreement ensures that an individual pays social security taxes to only one country at a time. For example, a U.S. employee temporarily transferred to work in Brazil for the same employer can remain covered by the U.S. Social Security system and be exempt from Brazilian social security contributions. To document this exemption, the employer obtains a “certificate of coverage” from the U.S. Social Security Administration to provide to Brazilian authorities.

This agreement also helps individuals who have worked in both countries but may not have enough credits in one system to qualify for benefits. The Totalization Agreement allows them to combine their periods of coverage under both the U.S. and Brazilian systems to meet the minimum eligibility requirements for retirement, disability, or survivor benefits. This coordination prevents workers who divide their careers from losing the benefits they have earned.

Key Provisions of the Proposed Tax Treaty

The proposed tax treaty, signed but awaiting ratification, contains several provisions designed to ease the tax burden on cross-border activities by reducing withholding tax rates. For dividends, the proposed treaty would cap the withholding tax at 15%. A lower 10% rate would apply to dividends paid to a company that owns at least 10% of the voting stock of the dividend-paying entity.

Interest payments would also see relief, with the general withholding tax rate limited to 15%. A lower 10% rate would apply to interest on long-term loans of five years or more from banks or insurance companies and on certain credit sales of equipment. These proposed rates are a reduction from the default statutory rates currently applied.

The treaty also addresses royalties, proposing a 10% withholding tax cap on payments for the use of copyrights, patents, and trademarks. For payments related to the use of industrial, commercial, or scientific equipment, the proposed rate is 15%. These provisions, if ratified, would provide greater certainty and lower tax costs for businesses engaged in technology transfer and licensing.

Other articles in the proposed treaty define what constitutes a “permanent establishment,” the threshold for a business to be subject to income tax in the other country. It also includes rules for the taxation of capital gains, generally assigning taxing rights to the seller’s country of residence, with specific exceptions for real property.

Information Exchange and Reporting Obligations

Even without a comprehensive income tax treaty, the United States and Brazil have established mechanisms for sharing tax information to combat tax evasion. A Tax Information Exchange Agreement (TIEA), which entered into force in 2013, allows the tax authorities of each country to request and obtain information from the other for tax administration and enforcement purposes. The TIEA ensures that financial information relevant to a tax investigation can be shared between the IRS and its Brazilian counterpart.

Further strengthening transparency is the intergovernmental agreement to implement the Foreign Account Tax Compliance Act (FATCA), which became effective in 2015. Under FATCA, Brazilian financial institutions are required to report information on accounts held by U.S. persons to the IRS. This reporting provides the U.S. government with visibility into the foreign financial assets of its taxpayers, making it more difficult to conceal income and assets offshore.

These existing agreements demonstrate a commitment to tax transparency and enforcement that operates independently of the pending income tax treaty. For individuals and businesses with financial interests in both countries, this means that tax authorities already have robust tools to verify that cross-border income and assets are being properly reported.