Short on time? Here are the highlights:
- The Brazilian government has confirmed that overseas payments related to study abroad will be exempt from a new tax on international funds transfers
Anyone with an interest in international education or student recruitment in Brazil held their breath earlier this month with the announcement of a new tax on overseas payments, including those related to study abroad.
The new tax was meant to take hold this month and follows a previous announcement from the Ministry of Tourism that it would introduce a new tariff, of between 6.38% and 33%, on payments made for personal services abroad. The Brazilian government subsequently indicated that the new tax would come into effect on 1 January 2016, reportedly at a rate of 25%, and would apply to any payments made for tuition and accommodation during studies abroad.
But on 20 January: a collective sigh of relief when Brazil’s Department of Federal Revenue (Receita Federal) confirmed that there would be no additional tax on study programmes. “There was no change in legislation for consignments for educational purposes (such as remittances abroad aimed to cover educational exchange expenses), which still are not subject to withholding tax,” says the official Receita Federal statement.
The clarification comes after vigorous lobbying in recent weeks by the Brazilian Educational and Language Travel Association (BELTA) and other tourism organisations. “Finally, on 20 January 2016 we had good news. The Department of Federal Revenue announced that study abroad programmes have no tax for funds to study abroad programmes,” says a statement from the association.
“I believe the significance of this decision of the Department of Federal Revenue is enormous,” adds BELTA President Maura de Araujo Leão. “There has been a great investment from the federal government with programmes such as Science Without Borders and by having this tax we would walk backwards in terms of educational and professional development of young adults.”
“Those who could not be part of [Science Without Borders; also Ciência sem Fronteiras] had to invest on their own to be able to go abroad to complement their studies. Students and professionals need to keep investing in their own personal development and having this tax would kill any opportunity for them to do so. Learning an extra language, developing skills, and getting more knowledge are crucial to having better professionals in our country and this is important for Brazil to return to economic growth. Therefore, it is a relief and a great hope for us in the field of study abroad that we can have a great year ahead of us.”
There is some ambiguity in last week’s Receita Federal announcement as to whether all study abroad expenses, including airfare and accommodations, would remain exempt from the tax. This question remains to be resolved and we will provide an update on this point as further information becomes available. For the moment, some observers have suggested that foreign providers may change how they price or package services for the Brazilian market – for example, by bundling accommodation and tuition together – in order to minimise any such tax exposure.
In the midst of a very challenging year for the Brazilian economy, the new tax, which could have increased the cost of study abroad by 25% or more, would have dealt a devastating blow to Brazilian student mobility. The Brazilian tourism industry had projected losses amounting to billions of dollars – and hundreds of thousands of jobs – in the wake of its introduction.
The prospect of any additional levy on funds transferred for study abroad was especially daunting given the dramatic change in the value of the Brazilian real over the past two years. In a recent sampling of five emerging-market currencies, the real registered the sharpest decline in value between December 2014 and December 2015. The Brazilian currency was off by nearly 30% against the Euro over this period. The drop-off was even more acute, however, in relation to the US dollar and British pound where the real declined by 47% and 41% respectively.
It is no wonder then that BELTA, its member agencies, foreign educator providers – and no doubt many Brazilian students and families as well – cheered the news last week that the tax would not apply to study abroad.
As the prevailing currency rates suggest, the Brazilian economy is in trouble. It was badly rocked by the global economic crisis in 2008/09 and economic growth has fallen off in the years since. Average growth between 2011 and 2014 was a tepid 2.2% per year, a rate that lagged most other countries in the region. The economy basically didn’t grow at all in 2014, and, while full-year results are not yet available, it is expected to have shrunk in 2015.
These conditions have many Brazilian agents projecting or reporting a decrease in business over 2014 and 2015. But as we noted in a related post late last year, there are also some important pockets of opportunity in Brazil. For example, BELTA members reported a distinct spike in demand – ranging between 21%-40% – for English for Special Purposes programmes in the first half of 2015 (compared to the same period for 2014).
There are indications as well of increased demand for post-graduate programmes as Brazilians look to strengthen their qualifications for a more challenging job market. “We’re going to come through this,” says Ms Leão. “When the crisis is behind us, people have to be ready. They can’t just be sitting still in the meantime.”