Brazilian Government - Ready for the Second Phase of Tax ReformPlanWho Will Pay the Bill?

The Brazilian government announced its proposal of reducing the corporate tax rate from 25% to 20% in the second phase of its tax reform.

The proposed corporate tax reduction would be phased in by lowering the base rate of 15% to 12.5% in 2022 and to10% in 2023. No changes on the 10% corporate tax surcharge.

A possible 20% taxation - above an exemption amount of R$20,000 (Brazilian Real) - on dividends would be the source of funds to balance out Brazil’s finances. Currently, dividends from domestic sources are not currently subject to tax.

The proposal exempts up to R$240,000 (Brazilian Real) distributions from micro and small businesses.

If approved, Brazilian may be seeing changes in the capital gain taxes. 

Today, gains on stock exchange are calculated monthly at a15% rate applicable to trading in the spot, forward, options, and futures markets, and a 20% rate applying to day trading. 

Under the government’s proposal, a quarterly net gain will be subject to a 15% tax rate. It is still uncertain if the taxpayer would be allowed a step-up in basis equal to the unrealized gain on which tax was paid.

The lack of taxation on dividends was a considerable incentive for investing in Brazil, despite the market insecurity. Once enacted, Brazil’s economy and legal system need to prove strong enough to keep an investment growth.

Source: Doc 2021-25633