The Federal Supreme Court (STF) has declared the 25% Withholding Income Tax (IRRF) levied on retirement and pension payments received by Brazilians living abroad unconstitutional. The decision represents a victory for taxpayers, as it establishes that the same progressive tax rate applied to Brazilian residents should also be applied to retirees and pensioners abroad.
Currently, the progressive tax rate exempts amounts up to two minimum wages (R$2,824), while the 27.5% rate applies to income above R$4,664.68. The Supreme Federal Court (STF) based its decision on the principle of equality, emphasizing that disproportionately high taxation for non-residents violates the principles of progressive tax and the prohibition of confiscation.
With this decision, retirees and pensioners residing abroad will see a significant reduction in their tax burden, which will now be proportional to their income, as is already the case for Brazilian residents. However, doubts remain about whether this understanding can be extended to other types of income received by Brazilians abroad, which could generate new legal challenges.
This decision opens the way for tax reassessments for Brazilians residing abroad, especially those who receive fixed income from Brazil, such as retirement benefits and pensions.
