Why no treaty
The US and Brazil have discussed an income tax treaty for decades but never concluded one. Political and economic disagreements have kept negotiations stalled. Currently only a limited Tax Information Exchange Agreement exists, no bilateral income tax treaty.
What this means for US-source FDAP
Without treaty relief, US dividends, royalties, and certain interest paid to your Wyoming LLC face 30% US withholding. The default rate. No reduction available. So if you hold US dividend-paying stocks through the LLC, expect 30% taken before payout.
What this means for operating businesses
Article 7 protection in treaties only matters when treaties exist. Without a Brazil-US treaty, the default US tax rules apply to non-residents. Good news: those default rules still exempt non-residents from US federal tax on business profits without ECI. So your Wyoming LLC running SaaS, agency, e-commerce typically pays zero US federal tax regardless of treaty status.
Brazilian CFC rules (Lei 12.973)
Brazil has Controlled Foreign Corporation rules requiring Brazilian residents to report and tax certain foreign holdings annually. US LLCs may fall under CFC depending on structure. Active operating businesses with substantive activity may escape CFC treatment. Passive holdings (investments, royalties) typically trigger CFC. Consult a Brazilian CPA before forming a structure.
Common Brazilian founder workarounds
- Avoid US-source FDAP through the LLC. Keep US dividends in personal accounts where treaty does not apply.
- Use the LLC for operating business only (SaaS, agency, e-commerce). Avoid investment holding.
- Coordinate with a Brazilian CPA on CFC reporting and Imposto de Renda filings.
- Consider holding companies in Uruguay or Paraguay (which have Brazilian treaties) for some investment scenarios.