Investments exempt from Income Tax

No one wants to fall into the fine mesh and get caught by the lion. The Income Tax (IR) declaration is usually a headache for many people. After all, what needs to be included? And investments, how to separate what to declare or not?

That is why many investors are concerned to find out more about possible fees that may be charged and whether investments are exempt from Income Tax. The truth is that both fixed and variable income can be charged and have a variety of alternatives.

Even though the shares are not included in the list of investments exempt from IR, the dividends of these companies represent a non-taxable income, which is different from Interest on Own Capital (JCP), which is when the tax is levied.

Do you know what investments are? Or rather, can you assess whether the exempt options are advantageous for you? Don’t forget that you can count on one of our investment advisors to make the best decision.

What we will see in this article:

Do Income Tax-exempt investments need to be declared?

An important point is that even if no tax is paid on these investments, the income earned needs to be declared in the Income Tax. When declaring, it is necessary to inform the amount invested and that is currently held by the investor.

In addition, it is necessary to put the amount referring to the earned income. In case you didn’t know, the data to be used in the statement are in the income reports provided by the financial institutions and banks where the investor has his resources applied.

What are the investments exempt from fixed income from the IR?

Many fixed and variable income investments are taxable, such as Treasury Direct public bonds and Bank Deposit Certificates (CDBs). But there are free alternatives.

1. Savings

Normally, savings need no introduction. It is the most popular application in Brazil — the most sought after product to leave money left over at the end of the month or to allocate an emergency reserve and an amount for short-term goals.

One of the reasons why savings accounts are popular among Brazilians is precisely the fact that they are one of the income tax-free investments. In fact, there is no IR charge on income from the booklet.

However, it is worth highlighting the importance of knowing other investment options. This is because saving has major disadvantages in relation to its profitability.

In a context of low interest rates, as we are living in Brazil, her earnings tend to lose value due to inflation. Thus, those who leave their money there may actually be making a loss.

2. Real Estate Credit Letters

An interesting alternative to savings, with the same advantage of exemption from IR, are the LCIs. They are bonds issued by private banks that aim to attract credit to finance activities in the real estate sector.

That is, banks use the money obtained from investors to carry out lending or financing operations to builders and other companies in the real estate sector.

As it is a matter of investing in a field considered a priority for the Brazilian economy, LCIs have the benefit of being income tax-exempt investments.

Those who invest in letters of credit are basically lending their money to the bank. You choose an application with a certain return, maturity and minimum investment. Then, on the agreed date, you will receive the money back plus interest.

For a brief comparison with savings, we know that, in lower interest rates, the account yields around 70% of the Selic rate. In contrast, it is possible to find LCIs, for example with a yield of 100% or more of the CDI — an index whose value is very close to that of the Selic.

But attention: it is important to pay attention to the liquidity of the investment and the minimum amount of the investment.

3. Agribusiness Letters of Credit

LCAs are bonds very similar to LCIs. They also work like a bank loan and follow the same logic as choosing a security with a certain yield rate, maturity date and minimum investment amount.

The difference between the two is only in the direction that banks give to the money obtained from investors. In this case, the credit is used to finance activities related to Brazilian agribusiness.

Once again, he refers to a sector considered a priority for the country. For this reason, it is also one of the investments exempt from Income Tax — as a way to encourage obtaining credit for agricultural production.

Another valid piece of information about LCI and LCA is that both are covered by the Fundo Garantidor de Crédito (FGC). It greatly reduces investment risks, as it guarantees investor payment even if the banking institution goes bankrupt up to a certain limit.

4. Real Estate Receivables Certificates

The next income tax-free investment on our list is the CRI. It is a title issued by securitization companies and is backed by real estate.

Similar to the alternatives we’ve presented so far, CRIs have a certain maturity date—when payment must be made to the investor.

The risk of this investment is slightly higher, as it is not covered by the FGC. So, before investing, it is important to pay attention to the rating of the security issuer, in order to assess the credit risk.

Still, another relevant difference in relation to CRIs is that they are not available to all investors. In order to invest in securities, you must be a qualified investor. That is, having an equity of more than R$ 1 million invested or being a certified professional in the financial market.

5. Agribusiness Receivables Certificates

The so-called CRAs have characteristics similar to the title we have just presented. Again, the difference is that it is related to rural businesses.

Like the CRI, the Agribusiness Receivables Certificates are not guaranteed by the FGC and are also intended for professional or qualified investors. Generally speaking, the minimum investment in CRI or CRA is quite high.

6. Incentivized debentures

Fixed income also presents the possibility of investing in debentures. They are securities issued by companies — which differentiates them from investments offered by banks, such as LCIs and LCAs.

By investing in debentures, you are lending money directly to a company, whether publicly traded or not. The debt will be paid with the respective combined interest rate, according to the term of maturity of the security.

Companies issue debentures to raise funds and use them in their daily activities or invest in their growth as a business.

However, it is important to differentiate between two types of debentures: common and incentivized ones. Only the second type has the advantage of exemption from IR.

This happens because the incentivized debentures are issued by companies related to the country’s priority sectors – and, therefore, are exempt from Income Tax. This is the case, for example, of companies linked to construction and infrastructure services in Brazil — such as roads, airports, sanitation, etc.

7. Passive income from Real Estate Funds

Real estate investment funds (FIIs) are very attractive for those who want to earn passive income in the real estate market. The funds act, for example, in the construction and sale of real estate or in the rental of sheds, commercial rooms and malls and are part of exempt investments.

Whatever the strategy, there is an exemption from IR on passive income received by FII shareholders. That is, the money that frequently falls into your account from the division of the fund’s profits is not deducted from Income Tax.

However, be aware of one difference: there is a tax levied on gains from the sale of shares traded on the stock exchange. If you dispose of your shares and get a value greater than the one you bought them for, you must pay 20% income tax on the income.

8. Dividends from Shares

Whoever invests in stocks for the long term remains a partner in the companies and is entitled to participate in their profit sharing. The division occurs from the distribution of earnings — which can be of different types.

For example, one of the main ones is the dividend. It is exempt from Income Tax for investors, as the company already pays income tax on profits before sharing it with shareholders.

On the other hand, earnings of the Interest on Own Capital type are not exempted. In this case, the company does not pay IR before distribution. Therefore, investors are taxed at 15% by the Federal Revenue Service.

9. Sale of shares (in some situations it is one of the exempt investments)

On the stock exchange, long-term investment is not the only option. Speculation activity is also common, which aims to obtain profit in the short term. In relation to it, some operations will be exempt and others will not.

For example, there is an income tax charge for those who perform day trade — which consists of buying and selling assets on the same day. The fee is 20% on winnings.

On the other hand, sales that take place in periods longer than one day may be investments exempt from Income Tax if they do not exceed the limit of BRL 20,000 in financial volume. If the operator sells less than this volume, there is no need to pay income tax.

If sales exceed the maximum amount, you will be taxed at 15% on the profit made. It is worth noting that traders’ Income Tax must be paid by issuing a DARF with the amount due.