On 25 June 2021, the Executive Branch sent the second stage of the tax reform proposal to Congress. This Tax reform includes the following changes:
- Government proposed to reduce the corporate income tax rate from 15% to 12.5% in 2022 and to 10% as of 2023. There was no proposed change in the incidence of the 9% CSLL rate and the additional 10% rate of IRPJ (if the net income exceeds BRL 20,000 per month). That means, the combined corporate tax rate is proposed to reduce from 34% to 31.5% in 2022 and 29% from 2023 and onwards.
- Because of the mandatory quarterly calculation, a new net operating loss (NOL) use rule would be introduced to allow the use of NOLs in the following three quarters instead of 30% of the entity’s taxable income.
- Dividends would no longer be considered as tax exempt, but would be subject to a 20% withholding tax rate. For tax haven jurisdiction or is subject to a “privileged tax regime”, this rate would be 30%. Dividends distributions by small entities (Maximum BRL 20,000 per month) are exempted from the above rules.
- The Bill proposed a DDL rule, which would be a type of domestic transfer pricing rule intended to control tax driven reallocation of profits among companies in Brazil that are deemed to be related parties (since there is no tax consolidation in Brazil).
