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Brazilian Government Delivers Second Phase of Tax Reform Plan in the National Congress — Orbitax Tax News & Alerts

Brazil's Ministry of the Economy has announced the delivery of the second phase of the government's tax reform plans in the Chamber of Deputies (lower house) of the National Congress on 25 June 2021. The first phase includes the reform of Brazil's complicated indirect tax system, while the second phase includes primarily direct tax reforms. Some of the main reform measures include:

  • A phased-in reduction of the corporate tax rate (IRPJ) from 15% to 12.5% in 2022 and to 10% in 2023, with the 10% surcharge maintained on taxable income exceeding BRL 240,000;
  • The introduction of new rules for the quarterly calculation of IRPJ and the social contribution on profits (CSLL), with 100% of losses in a quarter allowed to be offset in the following three quarters;
  • The introduction of new rules to simplify the calculation of the IRPJ and CSLL bases, which currently require different sets of records;
  • The introduction of a 20% withholding tax on dividends, with an exemption of up to BRL 240,000 per year for dividend distributions made by micro and small businesses, as well as an increased rate of 30% on dividends remitted to tax havens;
  • A reduction in the individual income tax through an increase in the monthly tax bracket thresholds as follows:
    • up to BRL 2,500 - 0%
    • BRL 2,500.01 to 3,200 - 7.5%
    • BRL 3,200.01 to 4,250 - 15.0%
    • BRL 4,250.01 to 5,300 - 22.5%
    • BRL 5,300.01 and above - 27.5%
  • Changes to the 20% simplified discount for individuals, which will be restricted to those with income of up to BRL 40,000 per year;
  • The removal of the possibility to deduct shareholder interest on net equity (juros sobre capital próprio - JCP);
  • The removal of the possibility to deduct bonus payments and profit sharing to partners and directors with company shares as operational expenses;
  • The introduction of new rules for businesses reorganizations and share sales to prevent undue tax benefits; and
  • The introduction of clear rules on calculating capital gains on indirect disposals of assets in Brazil by companies abroad.

Additional details will be published as the proposed reform progresses through the legislative process.