01 / 07 / 2021


After releasing the bill of the first phase of the Tax Reform related to the unification of the rules regarding the PIS and COFINS social contributions, the federal government published on June 25, a proposal for amendments to the Income Tax legislation (“PL 2337/2021”), in a new bill referred to as the second phase of the Tax Reform.
Despite the difficulties foreseen for the approval of the text as proposed by the executive branch of the government, given the Brazilian political moment at the time, it is important to closely follow the legislative discussions on these measures. The proposals reflect the intentions already demonstrated on previous occasions by the Brazilian Tax Authorities and, if approved, will represent profound changes in the calculation of income taxes in Brazil.
The proposal is divided into three main subjects: corporate taxation; taxation of financial investments; and taxation of individuals. We present herein a brief summary of the main aspects of the changes of the intended proposal in each of these subjects:

1. Corporate Taxation
– Dividends. Implementation of taxation in case of distribution of dividends to partners, with application of a 20% rate – as a general rule, and exemption of profits and dividends distributed by micro and small companies up to the limit of R$ 20 thousand per month;
– Corporate Income Tax (“IRPJ”). Reduction of the corporate tax rate to 10%, maintaining the additional 10% for profits above R$ 20 thousand per month and maintaining the Social Contribution on Net Profits (“CSLL”) at a 9% rate;
– Tax deduction of expenses of (i) Interest on the Capital Equity (“JCP”) and (ii) Goodwill (on M&A deals). As of 12/31/2021, extinction of the deductibility of payments of Interest on the Capital Equity (“JCP”) and expenses related to the tax amortization of premiums arising from the acquisition of equity interests with goodwill. In the case of the goodwill, in order to maintain the deductibility right, the acquisition must be closed until 12/31/2021, and the subsequent merger, a trigger for the beginning of deductible amortization at the ratio of 1/60, must occur until 12/31/2022;

2. Financial Investments Taxation
– Regressive Table. Extinction of the regressive table from 22.5% to 15% which was applicable on the calculation of the income tax levied on fixed or variable income investments and implementation of a single rate of 15%;
– Open funds. Termination of the periodical taxable event (come-quotas) which occurs each May, levied on investments in open-ended investment funds, and implementation of taxation with the a single rate of 15% in each November, or on the date of withdrawal or amortization of the investments of the fund;
– Closed funds. Application of the same regime as open funds, with a 15% rate in the “come-quotas” event only in November or on the date of redemption or amortization of the investments of the fund, whichever occurs first;
– FII. Termination of exemption of income earned by individuals in Real Estate Investment Funds (“FII”) with shares traded on the stock exchange market.

3. Individuals’ Taxation
– Progressive table. Interest readjustment of the values on the progressive tables for calculation of the income tax on individuals, maintaining the maximum rate of 27.5%;
– Simplified discount. Restriction of the special regime for deduction of expenses by the simplified discount, which would be available only for those individuals who earn up to R$ 40 thousand per year;
– Real Estate Revaluation. Possibility of reassessing and updating the value of real estate properties with the levy of a 5% tax on the difference between of the revaluation, which would be the result of the difference between the acquisition cost and the market value periodically attributed by the taxpayer.