What an investor needs to know about variable income taxation

Understanding how investment taxation works on variable income is essential for those who want to keep a profitable portfolio and tax compliance

The investor that operates in the variable income market has commitments with the Federal Revenue Office that goes beyond the submission of the annual declaration of Income Tax. This taxpayer must control the records of the movements and assess the results, both positive and negative, monthly.

Therefore, information and organization are allied to those who want to manage profitable investments and maintain tax compliance. According to Augusto Andrade, partner in DPC and individual taxation specialist, the investor must look for ways to organize the information about their investments, results, taxes payable and taxes recoverable.

“We assist our clients as we provide a solution that controls the inventories (quantity and cost), the results, and the imposing taxes, as we make it easier to follow up the profitability, the tax liability, and, consequently, supporting the tax compliance.”, he explains.

Taxation on Variable Income

Withholding Income Tax

When you are dealing with variable income, the financial institution is the one performing the payments through withholding taxes, however, the investor is necessarily responsible for the assessment of their revenue and/or losses.

Financial Institution -> Withholding Tax Withholding Income Tax (IRRF in Portuguese) 0.005% for operations on demand 1% for day trading

“This tax is automatically withheld, so it is known as “snitch”; a percentage that allows the Federal Revenue Office to identify the existence of a sales operation”, Andrade alerts.

Stock brokerage firms are required to withhold the “snitch” on every stock sale. On the brokerage invoice, it is identified as “IRRF sobre operações, base R$” (Withholding Income Tax on operations, base in Brazilian reais).

Besides assisting the Federal Revenue Office in identifying the taxpayer that performs variable income operations, the “snitch” tax also works as a trigger for the mandatory presentation of the Individual Income Tax Annual Declaration (Declaração Anual de Imposto de Renda de Pessoa Física, or DIRPF), as performing operations in the stock market is listed as one of the conditions for mandating the DIRPF presentation.

Taxation of the main types of variable income

Investimento	Alíquota	Isenção
Stocks	15%	When the total selling price of all stock set in certain month is under BRL 20 thousand, the positive results are tax exempt.
Day trading	20%	There is no exemption bracket.
Real Estate Investment Trust (Fundo de Investimento Imobiliário, or FII)	20%	There is no exemption bracket for assessing taxes on trust shares sales.

In any case, the Federal Revenue Payment Form (Documento de Arrecadação das Receitas Federais, or Darf) must be fully paid until the last business day of the month following the capital gain. The code to be used on the DARF for payment is 6015.

Andrade highlights that the main mistakes related to tax payment happen because of failing to understand the specific dynamic of taxation on variable income market taxation.

“Properly analyzing brokerage invoices is essential for making a correct assessment. It is fairly common for investors, especially those who do not carry out the assessment so often, to make mistakes because they do not understand the information fields of the invoice”, he comments.

Another common mistake that affects profitability is to not compensate losses with revenue in the following months. “If the investor sustained losses in a month, they are allowed to deduct those losses off of the positive results that come with the tax assessment later on”, the specialist instructs.

In the annual IR declaration

In the annual accounting to the Federal Revenue Office, the financial results in variable income must be detailed in a specific table of the declaration, divided by month and classified according to the cases: on-demand markets, future and for a term, besides the day-trading and investment trusts operations separation

Read also Taxation on investments: individuals should analyze the effects of taxes on profitability

Mistakes and omissions may prove costly

If the investor has not declared, nor paid the tax, legal increases will apply. The fine is 0.33% per day, limited to 20% of the total tax payable. The Selic interest rate accumulated for that period must also be paid.

On the Federal Revenue Office’s Legal Increases Calculation System (Sistema de Cálculo de Acréscimos Legais, or Sicalc), the taxpayer must calculate the fine and the interest rate, besides generating a Darf (separately for every month in arrears) with the amount payable.

Specialized guidance makes the difference

DPC’s Individual Taxpayer core group assists investors in making the tax-related calculations on investments and capital gain, consolidating results, and managing Darfs. Counting on this support allows the taxpayer to be at ease as they distance themselves from any risk linked to the non-compliance with the monthly or annual tax requirements.