The authority states that transparent LLCs owned by non-residents in the United States are considered entities established in a privileged tax regime, which triggers the annual incidence of personal income tax on profits, rather than only upon their distribution.
By Rafael Maniero and Mauricio Nucci
Legale Overseas, no. 978.
The Brazilian Federal Revenue Service (RFB) has issued an interpretation, through Consultation Solution No. 56/2026, establishing that Limited Liability Companies (LLCs) — U.S. entities — treated as transparent for tax purposes and held by non-residents of the United States are considered entities established in a privileged tax regime.
By adopting this interpretation, the RFB imposes a change in the tax treatment of the profits of these entities for individual taxpayers in Brazil. According to the Offshore Law (Law No. 14,754/2023), individuals who hold a controlled entity in a jurisdiction with a privileged tax regime are subject to annual taxation on profits at the individual level.
Accordingly, taxpayers must prepare or adapt the financial statements of these entities to comply with Brazilian rules and pay Personal Income Tax (IRPF) on the profits earned, regardless of their distribution. The tax must be paid on the last business day of each year, and the profits must be reported in the Annual Personal Income Tax Return (DIRPF).
Notwithstanding the clarity of the RFB’s interpretation, its underlying rationale is highly questionable. Brazilian taxpayers who hold a transparent LLC may still be subject to federal taxation on such income in the United States. There is no automatic correlation between the characterization of a pass-through entity and the absence of federal income taxation in the U.S.
Moreover, such income may be taxed in the United States at a different time than that considered under Brazilian law, depending on the nature of the income, its classification, and the manner in which it is allocated to members. This may result in timing mismatches.
This is a relevant point of attention, particularly because such mismatches may create challenges for the offset of taxes paid abroad, for purposes of applying the reciprocity agreement between the countries.
In any event, the classification proposed by the RFB requires, at a minimum, a careful case-by-case analysis to ensure tax compliance. Additionally, it is advisable for taxpayers to revisit any existing tax planning structures in order to avoid unexpected impacts.
Vaz de Almeida Advogados continuously monitors developments in international taxation and the impacts of the Offshore Law on foreign structures, analyzing their effects and the practical challenges faced by Brazilian taxpayers.
Translation Disclaimer
This document was originally drafted in Portuguese and subsequently translated into English using artificial intelligence (AI).
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