Brazil–Canada
Tax Guide
A practical guide to the tax framework governing transactions, investments, and individuals operating between Brazil and Canada.
Contact UsTwo major economies, no tax treaty, and two very different corporate tax systems.
Brazil and Canada have no bilateral tax treaty in force. Businesses and investors operating across both jurisdictions must navigate each country’s domestic tax rules independently, with no treaty-reduced withholding rates, no bilateral dispute resolution mechanism, and no shared framework for determining residence or permanent establishment. This guide covers the main taxes that affect Brazil–Canada cross-border arrangements, including Brazilian and Canadian withholding taxes, the Brazilian indirect tax reform, transfer pricing, and structuring considerations.
Canada’s corporate tax system is federal in structure, with a 15% federal rate supplemented by provincial rates that vary between approximately 8% and 16%, producing a combined federal and provincial rate of roughly 26–27% for most large businesses. Canada’s foreign affiliate rules, which can exempt dividends received from qualifying foreign affiliates from Canadian corporate tax, are a significant planning tool in the absence of a treaty. For advice specific to your situation, contact us.
Having no DTA does not mean being double-taxed, but it does mean paying more attention.
Canada has one of the most extensive DTA networks of any country, covering virtually all of its major trading and investment partners. Brazil is a notable exception. The absence of a treaty is a practical reality that requires careful structuring, but both countries’ domestic relief mechanisms, namely Canada’s foreign tax credit under section 126 of the Income Tax Act and Brazil’s own credit rules, prevent double taxation in most well-structured arrangements.
The foreign affiliate rules under Canada’s Income Tax Act are particularly relevant. Dividends received by a Canadian corporation from a qualifying foreign affiliate out of “exempt surplus” are deductible and effectively tax-free in Canada, which can significantly reduce the overall tax burden on Brazilian subsidiary profits that have been generated through active business. This is a domestic mechanism that partly compensates for the absence of a dividend article in a DTA. Brazil’s FAPI-equivalent provisions and the Foreign Accrual Property Income (FAPI) rules similarly affect how Canadian shareholders are taxed on passive income earned in Brazilian entities.
Full statutory WHT rates; FTC under s.126 ITA offsets most double taxation
Brazil’s IRRF and Canada’s 25% withholding taxes apply at full statutory rates. Canada’s foreign tax credit under s.126 of the Income Tax Act generally allows Brazilian IRRF to be credited against Canadian income tax, subject to the FTC limitation. For most well-structured income streams, the combined cost does not materially exceed the higher of the two countries’ rates.
Residence and permanent establishment under domestic law
Tax residence and whether each entity has a taxable presence in the other country are determined by each country’s own legislation. The risk of accidental Brazilian permanent establishment through Canadian executive decisions or management activities affecting Brazilian operations should be assessed, particularly for wholly owned Brazilian subsidiaries managed from Canada.
No MAP: FAPI adds complexity for passive income
Without a mutual agreement procedure (MAP), transfer pricing disputes cannot be resolved bilaterally. Canada’s Foreign Accrual Property Income (FAPI) rules under s.95 of the Income Tax Act may bring passive income earned in Brazilian CFCs into the Canadian shareholder’s income currently, adding a layer of Canadian tax that a well-structured active business arrangement would avoid.
Exempt surplus: active business dividends may be tax-free in Canada
Dividends paid by a qualifying foreign affiliate (which a Brazilian active-business subsidiary can be) from “exempt surplus” are deductible under s.113 of the Income Tax Act and effectively tax-free in the hands of the Canadian parent. This is the most significant domestic planning tool available in the absence of a DTA dividend article.
Information exchange. Both Brazil and Canada participate in the OECD Common Reporting Standard (CRS) and are signatories to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Federal Revenue Department (Receita Federal do Brasil) and the Canada Revenue Agency exchange financial account data on their respective residents annually. Opacity is not a practical planning option.
The main taxes that affect cross-border operations
The following taxes arise in virtually every substantive business relationship between Canadian and Brazilian entities. Each operates independently; satisfying one obligation does not reduce or eliminate any other.
Brazilian corporate income tax: IRPJ and CSLL
Brazilian companies are subject to Corporate Income Tax (Imposto de Renda das Pessoas Jurídicas, IRPJ) at 15%, with a 10% surtax on annual taxable income exceeding R$240,000, and Social Contribution on Net Income (Contribuição Social sobre o Lucro Líquido, CSLL) at 9% for most companies. The combined standard rate under the Actual Profit regime is effectively 34%. Many companies qualify for the Deemed Profit regime and pay considerably less.
Canadian corporate income tax: federal and provincial
Canadian resident corporations pay federal corporate tax at 15% on taxable income (9% for Canadian-controlled private corporations on active business income within the small business limit). Provincial rates add approximately 8–16% depending on province. The combined rate is typically 26–27% for large businesses. Canada taxes its residents on worldwide income. The foreign affiliate rules may exempt dividends from qualifying Brazilian subsidiaries from Canadian corporate tax.
Brazilian withholding income tax (IRRF) on outbound payments
Brazil imposes Withholding Income Tax (Imposto de Renda Retido na Fonte, IRRF) on payments to non-residents. Key rates: dividends 10% (Law 15,270/2025); interest 15%; royalties and technical services 15%; general services 25%. Canada is not on Brazil’s list of low-tax jurisdictions, so the elevated 25% rate does not apply to standard Canadian structures. With no DTA, Canadian recipients cannot reduce these rates.
Transfer pricing: dual compliance obligations
Both countries apply OECD arm’s-length transfer pricing rules. Brazil’s regime was reformed by Law 14,596/2023. Canada applies transfer pricing rules under s.247 of the Income Tax Act. Related-party transactions must independently satisfy both regimes. Without a bilateral mutual agreement procedure (MAP), disputes cannot be resolved bilaterally.
Brazilian indirect taxes: PIS, COFINS, ICMS and ISS
Brazilian businesses face a layered indirect tax burden: PIS (0.65–1.65%) and COFINS (3–7.6%) on gross revenue; ICMS (a state-level consumption tax similar to GST, typically 12–18%) on goods and inter-state services; and ISS (municipal services tax, 2–5%) on services. Cross-border service payments from Brazil to Canadian providers attract PIS/COFINS-Import on the Brazilian side. These are not creditable against Canadian tax and represent a real additional cost.
Canadian GST/HST on cross-border supplies
Canadian Goods and Services Tax (GST) at 5% (or Harmonised Sales Tax (HST) at 13–15% in participating provinces) applies to taxable supplies made in Canada. Exports of services to non-residents are generally zero-rated where the service is performed for the benefit of a non-resident not in Canada at the time of supply. Canadian GST/HST and Brazil’s incoming CBS/IBS system are structurally comparable destination-principle consumption taxes.
IOF: Brazil’s financial transactions tax
Brazil’s Tax on Financial Transactions (Imposto sobre Operações Financeiras, IOF) applies to foreign exchange transactions, credit operations and insurance. Cross-border loan transactions attract IOF on the foreign exchange leg. IOF on loan proceeds was reduced to 0% for loans exceeding 180 days following a 2022 reform. Capital contributions in cash attract IOF at 0.38% on the exchange operation.
The 34% headline rate is not what most Brazilian companies actually pay.
The 34% combined IRPJ/CSLL rate applies under the Actual Profit regime (Lucro Real), where tax is calculated on audited net profit after allowable deductions. Many Brazilian companies instead use the Deemed Profit regime (Lucro Presumido), which produces substantially lower effective rates and has important implications for Canadian investors modelling exempt surplus eligibility and Pillar Two exposure.
Actual Profit regime (Lucro Real)
Mandatory for financial institutions and companies with annual gross revenue above R$78 million. Tax is calculated on audited net profit after deductions. IRPJ at 15% plus 10% surtax on income over R$240,000 per year; CSLL at 9%. Combined headline rate: 34% of taxable profit. Available by election to any company regardless of size.
Deemed Profit regime (Lucro Presumido)
Available to companies with annual gross revenue up to R$78 million. Tax base is a fixed percentage of gross revenue. Services: 32% deemed margin, producing effective combined IRPJ/CSLL on revenue of roughly 11–14%. Commerce and industry: 8% deemed margin, roughly 3–5% on revenue. A highly profitable service company may pay considerably less than 34% of actual profit.
Exempt surplus and Pillar Two implications. For Canadian foreign affiliate purposes, whether a Brazilian subsidiary’s profits qualify as “exempt surplus” (effectively tax-free dividends to the Canadian parent) depends in part on the foreign accrual tax applicable to the income. A Brazilian entity on the Deemed Profit regime may carry a low effective tax rate relative to its actual profitability, potentially affecting exempt surplus calculations and Pillar Two compliance. Canada enacted its Global Minimum Tax Act in 2024, implementing the Pillar Two Income Inclusion Rule and Undertaxed Profits Rule. Canadian-headquartered multinationals with Brazilian subsidiaries should assess their GloBE exposure on an entity-by-entity basis, particularly where the Brazilian entity is taxed under the Deemed Profit regime.
Brazilian withholding income taxes on payments to Canadian recipients
Brazil imposes Withholding Income Tax (Imposto de Renda Retido na Fonte, IRRF) on most categories of income paid to non-resident recipients, including Canadian entities and individuals. The IRRF is withheld by the Brazilian payer and remitted to the Federal Revenue Department (Receita Federal do Brasil). Canada is not on Brazil’s list of low-tax jurisdictions (paraísos fiscais), so standard rates apply.
| Payment type | IRRF rate | Notes |
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| Dividends | 10% | Law 15,270/2025 introduced a 10% withholding income tax on dividends remitted abroad. Canadian shareholders should review whether the 10% IRRF qualifies as a “non-business income tax” creditable under s.126(1) of the Income Tax Act. |
| Interest | 15%Standard rate | Interest paid to non-residents is generally subject to 15% IRRF. A rate of 25% applies where the beneficiary is resident in a low-tax jurisdiction under Brazilian rules. Canada is not a low-tax jurisdiction for Brazilian purposes. |
| Interest on Net Equity (JCP) | 17.5% | Interest on Net Equity (Juros sobre Capital Próprio, JCP) is a Brazilian mechanism allowing notional interest deductions on equity. The IRRF rate on JCP payments to non-residents was increased to 17.5% by Complementary Law 224/2025. |
| Royalties and technical services | 15%CIDE may also apply | Royalties for technology transfer and technical services attract 15% IRRF. The Economic Intervention Contribution (Contribuição de Intervenção no Domínio Econômico, CIDE) of 10% may also apply on technology remittances, borne by the Brazilian payer on top of the contract price. |
| Services (general) | 25% | Remuneration for services rendered by non-resident individuals generally attracts 25% IRRF. Services rendered by non-resident legal entities may be subject to 15% or 25% depending on the nature and structure of the payment. |
| Capital gains | 15–22.5% | Capital gains realised by non-residents on Brazilian assets are subject to a progressive IRRF schedule: 15% up to BRL 5 million, rising to 22.5% above BRL 30 million. |
Other Brazilian taxes that apply alongside the IRRF
IOF (Tax on Financial Transactions)
IOF applies to the foreign exchange transaction associated with a cross-border payment. The rate varies by transaction type and tenor and is subject to frequent change by executive decree. It is borne by the Brazilian party executing the currency conversion.
PIS-Import and COFINS-Import
Services imported into Brazil attract PIS-Import and COFINS-Import. The standard non-cumulative rates are 1.65% (PIS-Import) and 7.6% (COFINS-Import), totalling approximately 9.25% of the contract value. Companies on the cumulative basis pay 0.65% and 3% respectively. These contributions are levied on the Brazilian importer and are borne in addition to the contract price.
ISS (Municipal Services Tax)
ISS applies to imported services at rates between 2% and 5%, depending on the municipality and the classification of the service. It is assessed on the Brazilian payer on the gross contract value.
CIDE (Economic Intervention Contribution)
CIDE at 10% applies to technology transfer and technical service payments remitted abroad. It is borne by the Brazilian payer on top of the contract value, not withheld from the Canadian party’s receipt.
Indirect taxes reform: transitional period. 2026 is the first transitional year of Brazil’s new dual-GST system. Reporting continues under PIS/COFINS while new Contribuição sobre Bens e Serviços (CBS, a federal tax) and Imposto sobre Bens e Serviços (IBS, a state and municipal tax) fields are tested. Full abolition of PIS and COFINS begins in 2027, with IBS replacing ICMS and ISS through 2033. CBS and IBS are structurally comparable to Canada’s GST/HST. See our Brazil tax reform guide for a full overview.
How Brazilian taxes stack up on a single transaction
When a Brazilian entity makes a payment to a Canadian recipient, multiple Brazilian taxes can apply simultaneously. The IRRF reduces what the Canadian party receives; additional taxes (PIS-Import, COFINS-Import, ISS, CIDE, IOF) increase what the Brazilian party pays. The combined effect makes the true cost of a cross-border transaction substantially higher than the face value of the contract.
The examples below use a base contract value of USD 100,000 and the standard non-cumulative PIS-Import and COFINS-Import rates. IOF is excluded given its variability. The Canadian income tax figures use a simplified 27% combined federal and provincial rate and do not account for the foreign affiliate or FAPI adjustments discussed in the next section.
Example 1: Technical services fee
USD 100,000 paid by a Brazilian company to a Canadian service provider
Example 2: Technology royalties
USD 100,000 royalty paid by a Brazilian licensee to a Canadian licensor
Example 3: Dividend distribution
USD 100,000 dividend remitted by Brazilian subsidiary to Canadian parent
Example 4: Intercompany interest payment
USD 100,000 interest paid by Brazilian subsidiary to Canadian parent lender
Importing physical goods into Brazil
The examples above apply to financial flows and services. Physical goods exported from Canada into Brazil face a separate and cumulative customs and indirect tax regime. Goods imports attract Import Tax (Imposto de Importação, II), the Tax on Industrialised Products (Imposto sobre Produtos Industrializados, IPI), PIS-Import and COFINS-Import at the goods rates (2.1% and 9.65% respectively, higher than the 1.65%/7.6% service rates), and ICMS, the state-level consumption tax, calculated on a grossed-up base that includes all other taxes. Canada has no free trade agreement with Brazil, so the full Mercosur Common External Tariff (TEC) applies. The combined burden typically adds 40–70% or more to the CIF value. For a full breakdown, see our Brazil Tax Guide.
Example 5: Merchandise import
USD 100,000 CIF value of industrial goods shipped from Canada to Brazil (illustrative tariff rates)
These are simplified illustrations. The actual tax burden depends on the classification of the payment, the applicable FTC limitation, IOF rates at conversion, the availability of exempt surplus treatment for dividend flows, the Brazilian entity’s tax regime (Actual Profit or Deemed Profit), and the impact of Brazil’s indirect taxes reform on PIS/COFINS-Import obligations during the transition. Merchandise import rates must be verified by NCM code. These figures illustrate the stacking effect and are not a substitute for transaction-specific advice.
Canadian taxation of Brazil-sourced income
Canada taxes its residents on worldwide income. Brazil-sourced income received by Canadian residents is subject to Canadian income tax, with relief available through foreign tax credits under s.126 of the Income Tax Act. Two regimes in particular govern how Canadian corporations are taxed on their interests in Brazilian entities: the foreign affiliate rules and the FAPI rules.
Foreign affiliate rules and exempt surplus
A Brazilian corporation in which a Canadian corporation holds at least 10% of the voting shares (directly or indirectly) is a “foreign affiliate” of the Canadian corporation. If the Canadian corporation also has sufficient ownership to meet the 10% threshold, dividends received from the Brazilian affiliate may be deductible in computing the Canadian corporation’s income under s.113 of the Income Tax Act, depending on the “surplus pool” from which they are paid.
Dividends paid from “exempt surplus” (broadly, active business income earned in a country that has either a DTA or a Tax Information Exchange Agreement with Canada, or is otherwise a “designated treaty country”) are fully deductible (and effectively tax-free) in Canada. Brazil does not have a DTA with Canada, but Brazil does have a Tax Information Exchange Agreement with Canada, which means Brazil-sourced active business income may qualify for exempt surplus treatment. This is a significant planning consideration and should be verified with Canadian counsel given the complexity of the surplus computation rules.
Foreign Accrual Property Income (FAPI)
Where a Brazilian corporation is a “controlled foreign affiliate” of a Canadian taxpayer (broadly, a foreign affiliate in which the Canadian taxpayer and related persons collectively hold more than 50% of the voting or equity interests), passive income earned by the Brazilian affiliate (including interest, rents, royalties, dividends from non-active subsidiaries, and certain income from property) may constitute Foreign Accrual Property Income (FAPI) that is included in the Canadian shareholder’s income in the year it is earned, regardless of whether it is distributed. An offsetting deduction is available for foreign accrual taxes paid by the affiliate on the FAPI.
Foreign tax credits
Canada allows a credit under s.126 of the Income Tax Act for foreign income taxes paid on foreign-sourced income. The credit is limited to the Canadian tax otherwise payable on the foreign income. Brazilian IRRF paid on royalties and other passive income generally qualifies as a creditable “non-business income tax” under s.126(1). The creditability of the 10% dividend IRRF under Law 15,270/2025 should be confirmed with Canadian counsel given the interaction with the s.113 deduction and the surplus computation rules.
No capital gains exemption on disposal of Brazilian shares. Unlike New Zealand, Canada taxes capital gains. A Canadian corporation disposing of shares in a Brazilian company will generally recognise a capital gain for Canadian purposes, of which 50% (or 2/3 for gains above CAD 250,000 realised after 25 June 2024 under proposed changes) is included in income. The Canadian “participation exemption” for gains on shares in foreign affiliates (the “exempt capital gains” concept) may reduce the gain, but is subject to conditions. Brazilian IRRF on the same gain is creditable against Canadian tax, subject to the FTC limitation.
Transfer pricing: two OECD-aligned systems without a MAP
Both Brazil and Canada now apply transfer pricing rules aligned with the OECD arm’s-length standard. The absence of a DTA means there is no mutual agreement procedure to resolve disputes arising from transfer pricing adjustments in either country.
Brazil’s new transfer pricing rules
Law 14,596/2023 and IN RFB 2,161/2023 replaced Brazil’s former fixed-margin transfer pricing system with rules aligned with the OECD Transfer Pricing Guidelines, effective from 2024. Intercompany transactions between Brazilian and Canadian related parties are now tested against the arm’s-length standard using OECD-approved methods (CUP, resale price, cost-plus, TNMM, profit split).
Canada’s transfer pricing rules
Canada’s transfer pricing rules under s.247 of the Income Tax Act also follow the OECD arm’s-length standard. The Canada Revenue Agency may adjust the Canadian entity’s taxable income if the transfer price does not reflect arm’s-length terms. Canada imposes a 10% penalty on transfer pricing adjustments where the taxpayer has not made reasonable efforts to determine and use arm’s-length transfer prices. Country-by-Country Reporting is required for Canadian entities that are part of groups with consolidated revenue above CAD 750 million.
Thin capitalisation (EIFEL) interaction with transfer pricing. Canada’s EIFEL rules and transfer pricing rules interact where a Canadian subsidiary of a Brazilian parent carries related-party debt. The arm’s-length pricing of the debt and the interest rate must satisfy transfer pricing requirements under s.247, while the deductibility of interest is also capped by EIFEL at 30% of adjusted taxable income. Both analyses must be done independently and simultaneously.
Structuring considerations for Canadian investors in Brazil
In the absence of a DTA, the holding structure chosen for a Canadian investment in Brazil has a direct and material impact on the overall tax burden and on the availability of exempt surplus treatment for dividends.
Holding structure
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Direct Canadian holding The simplest structure. Canadian corporate shareholders will receive dividends net of 10% IRRF under Law 15,270/2025. If the Brazilian subsidiary qualifies as a foreign affiliate and the dividend is paid from exempt surplus, the Canadian corporate tax on the dividend may be nil, making the 10% IRRF the entire cross-border tax cost on repatriation. The surplus pool computation must be maintained from the date of investment.
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Intermediate DTA-country holding Routing the investment through a jurisdiction that has both a DTA with Brazil and an acceptable tax relationship with Canada can reduce IRRF on outbound flows from Brazil. Singapore, the Netherlands, and the UAE each have DTAs with Brazil. The intermediate holding structure must satisfy Brazil’s beneficial ownership and anti-avoidance rules and must not create an unacceptable tax cost at the intermediate level.
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Brazilian holding (Ltda. or S.A.) Interposing a Brazilian holding company consolidates local operations and defers the 10% IRRF, which applies only on remittances abroad under Law 15,270/2025, not on distributions between Brazilian entities. Foreign investment must be registered with the Central Bank of Brazil.
Key takeaways for Canadian investors
Assess foreign affiliate and exempt surplus status from day one
The exempt surplus rules require meticulous surplus pool tracking from the date the Brazilian entity becomes a foreign affiliate. The computation is complex and cannot easily be reconstructed retroactively. Engage Canadian counsel at the time of the initial investment.
Register the investment with the Central Bank of Brazil
Foreign direct investment in Brazil must be registered with the Central Bank of Brazil. Correct registration is a precondition for the repatriation of capital and the remittance of profits.
Model EIFEL before structuring intercompany debt
Any related-party debt between a Brazilian parent and a Canadian subsidiary must be structured within the EIFEL 30% adjusted taxable income cap. Debt levels that were acceptable under the former thin capitalisation safe harbour may produce denied deductions under the new EIFEL rules.
No social security totalisation agreement
Brazil and Canada do not have a social security totalisation agreement. Employees working in one country for an employer based in the other may be required to contribute to both countries’ social security systems simultaneously, significantly increasing total employment costs.
This guide is a general overview only and does not constitute legal or tax advice. Tax laws in both countries change frequently, including legislative reforms currently in progress, and the information in this guide reflects the position as understood at the time of publication. The specific tax treatment of any transaction depends on the facts, the structure adopted, and the current state of the law in each jurisdiction. Obtain specific legal and tax advice before structuring any cross-border transaction.
Need advice on your Brazil–Canada tax structure?
This guide provides general information only. The interaction of Brazilian and Canadian tax rules in the absence of a DTA requires careful, transaction-specific analysis. Contact us to discuss your situation.
