03/09/2025
In effect since 2024, Law No. 14,754/2023 introduced significant changes to the taxation of foreign investments, particularly with respect to offshore entities. Taxpayers holding equity interests in foreign companies are required to choose between two taxation regimes, as outlined below:
Transparent Regime
- The offshore entity is treated as an extension of the individual taxpayer.
- The offshore entity is declared in the individual’s Annual Income Tax Return (Declaração de Ajuste Anual – DAA).
- Taxation only applies when the gain is actually realized.
- There is no automatic taxation on the mere appreciation of investments.
Opaque Regime
- The offshore entity is treated as a separate legal entity from the individual.
- The offshore is declared in the individual’s Annual Tax Return, but the investments held within the company are not individually reported.
- This regime imposes an annual 15% tax on accounting profits, even if the profits have not been made available to the taxpayer.
Under the opaque regime, certain investments in shares may lead to accounting variations due to fair value adjustments of the assets. These fluctuations, although purely potential, are included in the accounting profit, which, under the new law, now serves as the basis for taxation.
In light of this scenario, the 6th Federal Court of Ribeirao Preto (São Paulo) recently upheld a taxpayer’s right to prevent the levy of Income Tax on the appreciation of shares held abroad through offshore entities, in cases where no actual sale or redemption of such assets has taken place.
In its ruling on the merits, the federal judge acknowledged that the mere appreciation of assets, without the taxpayer having actually incorporated such gains into their estate, does not constitute a valid taxable event. In other words, taxation cannot be imposed on unrealized gains.
The ruling, issued in a writ of mandamus filed in 2025, is one of the first judicial decisions to oppose the automatic taxation introduced by Law No. 14,754/2023 and could set a precedent for further legal challenges by investors.
It is important to highlight that the matter is still under legal development, particularly before higher courts, but the precedent suggests that taxpayers subject to the opaque regime may seek judicial relief to exclude taxation on unrealized gains recorded by foreign entities.
Our Tax team is available to provide further clarification and guidance on the topic.
Co-authored by: Thais Ribeiro Bernardes Casado e Natalia Ramos Alves.
