Main Issues On The Brazilian Income Tax Reform Bill As Approved By The Chamber Of Deputies

• Published date: 28 September 2021
• Subject Matter: Tax, Income Tax, Corporate Tax, Tax Authorities
• Law Firm: Gaia Silva Gaede Advogados
• Author: Luiz Felipe Menedin

The Brazilian Federal Government sent to Congress, on June 25^th 2021, a tax reform proposal focusing on income tax. The proposed bill (PL 2.337/2021) brings relevant changes related to Corporate Income Tax. Afterwards, on September 2^nd 2021, the bill was approved, with amendments, by the Chamber of Deputies, and is still subject to approval by the Senate and to presidential sanction.

The proposed tax reform will progressively reduce the rates of the Corporate Income Tax, from 15% to 8%. Moreover, companies are also currently subject to a 10% surcharge on yearly profits that exceed BRL 240,000, which would not be reduced. On the other hand, the 9% social contribution tax (CSLL) would be reduced to 8%, if certain tax benefits are repealed. While decreasing the corporate tax burden from 34% to 26%, dividends paid to most shareholders (legal entities and individuals, either residents or non-residents) will no longer be tax-exempt.

Hence, according to the current wording of the bill, dividends would be subject to the withholding income tax at a flat 15% rate, which would increase the Corporate Income Tax effective burden, for companies who distribute dividends, from current 34% to 41% (roughly speaking), inducing companies to run on a new tax planning race to neutralize this tax increase.

Furthermore, the Brazilian version of an allowance for corporate equity ("Juros sobre Capital Próprio") will no longer be tax deductible for Corporate Income Tax purposes, what will certainly increase the cost of repatriation of profits to investors, specially to those located...