Double Taxation Brazil-US: How the Absence of a Treaty Can Impact Your LLC

Double taxation Brazil-USA This is one of the topics that generates the most questions among Brazilian entrepreneurs who own—or intend to open—a company in the United States. Most people believe that simply forming an LLC is enough to reduce taxes, operate internationally, and maintain a more tax-efficient structure. For many years, this perception was reinforced by simplified content that treated opening an American company as an almost automatic solution.

The reality, however, is much more complex.

Brazil and the United States do not have a comprehensive treaty to avoid double taxation of income, as is the case between several other countries. This absence does not mean that every entrepreneur will be taxed twice on the same income, but it significantly increases the need for planning. Depending on the structure adopted, the tax residence of the partner, and how profits are recognized in each jurisdiction, the same economic result can be subject to significant tax impacts.

In recent years, this topic has gained even more importance following changes in interpretation by the Internal Revenue Service, especially regarding American LLCs. Companies that previously believed they had an efficient structure have begun to revise their internationalization models to reduce tax risks and preserve their growth capacity.

The absence of a treaty changes the logic of planning.

Businesspeople often ask if there is double taxation between Brazil and the United States. The answer requires a bit more context.

In many countries, international treaties establish clear rules regarding which jurisdiction has priority for taxing certain incomes and what mechanisms can be used to prevent the same profit from being taxed twice.

Between Brazil and the United States, this broad protection does not exist.

This means that tax analysis depends on each country's internal legislation and the specific characteristics of the structure used. In practice, this means that opening a company in the United States does not automatically eliminate tax obligations in Brazil for those who remain Brazilian tax residents.

This is a point that many entrepreneurs only discover after starting their business. internationalization to the USA, when they realize that owning an American company does not, in itself, change their status with the Brazilian tax authorities.

Why does LLC generate so many questions?

Much of this discussion revolves around the legal nature of the LLC (Limited Liability Company).

In the United States, an LLC can be considered a transparent entity for tax purposes, depending on how it is structured and the tax election held with the Internal Revenue Service (IRS). This means that, in certain situations, profits can be directly attributed to its members without taxation at the company level.

This feature offers flexibility and explains why the LLC has become so popular among foreign entrepreneurs.

The problem is that this fiscal transparency doesn't always receive the same treatment in other jurisdictions.

In Brazil, the analysis depends on Brazilian tax legislation, the rules applicable to controlled entities abroad, and the interpretation adopted by the Federal Revenue Service. It is precisely on this point that important debates have arisen following the publication of... COSIT 56/2026, which introduced new parameters for certain international structures involving LLCs.

Therefore, anyone intending to use an LLC needs to understand that the American tax treatment does not automatically determine how profits will be analyzed in Brazil.

This topic is also explored in more detail in the article. Tax authorities will start taxing LLC profits in the US: the problem that could destroy your international structure., which explains how changes in interpretation can affect Brazilian companies with international operations.

The biggest concern isn't paying taxes. It's paying taxes inefficiently.

No serious international planning aims to eliminate taxes altogether.

The goal is to prevent an inadequate structure from generating unnecessary costs, legal uncertainty, or exposure to future fines.

When a company is created without considering the interaction between Brazilian and American laws, situations may arise in which profits are recognized at different times, subject to different taxation rules, or accompanied by more complex ancillary obligations.

In some cases, the problem doesn't appear immediately.

The company continued to operate normally for years.

The profits are reinvested.

The operation is growing.

Only later do fiscal questions arise that could have been avoided with proper planning from the start.

That is precisely why opening a company abroad should not be seen as a mere administrative procedure, but as part of a broader expansion strategy.

Corporate structure makes a difference.

Another common mistake is believing that all American companies produce the same tax effects.

It doesn't produce anything.

An LLC, a Corporation, or an international holding company have different legal and tax characteristics, both in the United States and in Brazil.

The choice of structure needs to consider factors such as the tax residence of the partners, the objective of the operation, the expected distribution of profits, the assets involved, the succession strategy, and the growth prospects.

This is one of the reasons why we discussed it in LLC, Corporation, or Holding Company: which structure makes sense for each stage of a company? There is no universally best structure. The structure that best suits each business context is the one that exists.

Choosing correctly from the start is usually much less costly than reorganizing the entire corporate structure years later.