The Brazilian and Swiss Governments signed a Double Tax Treaty (DTT) on 3 May 2018.
Switzerland is one of the biggest investors in the Brazilian market and Brazil and Switzerland have already signed an Automatic Exchange of Information Agreement, which came into force on 1 January 2018.
This new treaty, follows current OECD standards, including Base Erosion and Profit Shifting (BEPS) measures and anti-abuse rules and is anticipated to significantly increase investment between the two countries.
The new DTT not only introduces a number of tax advantages but also provides certainty in terms of tax treatment and will therefore generate increased confidence.
The Treaty is unique from a Brazilian perspective, as certain clauses are not included in any of Brazil's other 33 DTTs.
Dividends: will be taxed in the source country, up to the general limit of 15%. The exception is companies holding more than 10% of the shares for at least one year, where the tax rate will be 10%.
The clauses relating to dividends are only relevant for dividends paid from Switzerland to Brazil. This is due to the fact that where dividends are paid from Brazil to Switzerland, existing domestic rules are more beneficial than the provisions of the Treaty.
Interest: will be taxed in the source country, up to the general limit of 15%. If the beneficial owner is a bank and the loan has been granted for at least five years, to finance the purchase of equipment or investment projects, the tax rate will be 10%.
Switzerland does not levy Swiss withholding tax on interest arising from regular loan agreements. However, interest on bonds and bank interest are generally subject to Swiss withholding tax.