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The Federal Government submitted last Friday, 06/25/2021, a proposal for the 2nd phase of the Tax Reform, proposing changes in the legislation related to the income tax of individuals and legal entities. Check out the bulletin prepared by our Tax Law team listing the main proposals for change.

The Government submitted to Congress last Friday, 06/25/2021, Bill no. 2337/2021, related to the 2nd phase of the Tax Reform, proposing changes in the legislation related to the income tax of individuals and legal entities. According to the explanatory memorandum, the main goals are to modernize IRPJ (legal entity income tax) and CSLL (social contributions), with the reduction of their tax rates and introducing taxation on profits and dividends, improving the taxation of investments in the financial and capital markets and adjusting the table of income tax of individuals.

The main amendments are:

For individuals:

• Income Tax table updated, with a timid increase in the exemption range;
• Restriction of the application of simplified discount in the calculation of the Income Tax for people who have an income of up to 40 thousand per year;
• Permission to update the value of real estate registered in the Income Tax Return and acquired until December 31, 2020, subject to the payment of 4% of final Income Tax on the difference;
• Taxation of dividends received from legal entities as Income Tax exclusively at the source at the rate of 20% or 30% if the beneficiary is in a tax haven, with exemption for amounts of up to 20 thousand in the month paid by micro-enterprises or small businesses; and
• Automatic taxation by the Income Tax of profits arising from equity interests in offshore companies located in tax havens.

For legal entities:

• Progressive reduction of the rate to 12.5% in 2022 and 10% from 2023 on, maintaining the additional rate at 10%;
• Non-deductibility of interest on equity after 12.31.2021;
• Adjustments to the rules applicable to corporate reorganizations and capital gains arising from the sale of equity, such as the prohibition of the deductibility of goodwill after the merger for acquisitions after December 31, 2021 and a portion of the capital gain of assets already amortized up to the date of the merger or sale will no longer be part of the acquisition cost for tax purposes;
• End of the annual taxable income calculation regime, the quarterly regime becoming mandatory, allowing that the losses of a quarter be offset in the next 3 quarters, without the limitation of 30%;
• Approximation of the IRPJ and CSLL calculation bases, by means of uniformity rules.
• Expansion of the hypotheses of mandatory adoption of taxable profit, for activities whose margins are much higher than those of presumptive profit, such as the exploitation of copyright, image, voice and brand or revenues from royalties or real estate activities (except real estate development) that represent more than 50% of total gross revenue;
• Distribution of dividends by means of the delivery of goods and rights must be made at market value, unless it is lower than book value;
• Taxation of capital gain in cases of indirect disposal of assets held by persons that are residents or domiciled abroad, to avoid cases of non-interposition due to the interposition of offshore structures;
• Creates new cases for the disguised distribution of profits, such as debt forgiveness of a related person;

For financial investments:

• Quarterly calculation of income tax levied on income arising from investment in the stock exchange and unification of applicable rates at 15%;
• End of the escalation of the rates levied on income arising from the application of fixed income, of the open and closed funds, all of which are subject to a 15% rate;
• End of the exemption on income distributed by Real Estate Investment Funds (FII) with shares traded on the stock exchange from 2022 on, 15% being the rate applicable to all income and gains, maintaining the exemptions on income from Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs);
• Introduction of the incidence of the “come-cotas” mechanisms for closed funds, including determining the immediate taxation of earnings not taxed in the past;
• Equivalence of “patrimonial” FIPs to legal entities for tax purposes.

Our firm shall remain attentive to the upcoming bill updates.