The second stage of the tax reform was submitted by the federal government to Congress last Friday (25/06). The proposal (PL 2337/2021) provides for several changes to the legislation on Personal and Corporate Income Tax (“IRPF” and “IRPJ”).

We highlight the main points of the text below:

Individuals

• Expansion of the exemption range for taxable income, from the current R$1,903.98 to R$2,500 per month. The maximum rate, of R$27.51, will only apply to income above R$5,300. Today, it applies to income above R$4,664.68.
• Limitation on choosing the simplified discount in the IR tax return for those who earn up to R$1,000,000 per year.
• Possibility of updating the values of real estate acquired up to 12/31/2020. The basis for calculating income tax (capital gains) will be the difference between the updated value and the acquisition cost of the property. The tax amount will be calculated at the rate of 5% (currently, the capital gain on the sale of real estate is calculated at the progressive rate of 15% to 22.5%).

Dividends

• As of January 2022, dividends, currently exempt, will be subject to Income Tax Withheld at Source (“IRRF”) at the rate of 20%, with the exception of profits paid by ME and EPP up to the limit of R$ 20 thousand per month.
• For residents and/or domiciled in a country with favorable taxation, or individuals and legal entities subject to a privileged tax regime (under articles 24 and 24-A of Law 9,430/19996), the rate will be 30%.

Legal Entities

• Gradual reduction of the rate from 15% to 12.5% in 2022, and 10% from 2023 onwards. The rates of the additional IRPJ (10%) and CSLL (9% to 20%, depending on the activity of the legal entity) would remain maintained.
• The quarterly calculation regime becomes mandatory in the Real Profit system, with the monthly calculation being abolished.
• End of deductibility of Interest on Equity (“JCP”).
• Legal entities will be required to adopt the Real Profit taxation regime: (i) that explore credit securitization activities; (ii) whose gross revenue resulting from royalties, administration, rental or purchase and sale of their own properties represents more than 50% of the gross revenue for the year, and (iii) that have an activity involving the exploitation of image, name, brand or voice rights.
• The assets and rights delivered to the partner or shareholder by the legal entity, as a form of return of participation in the share capital, must be assessed at market value, except if the market value is lower than the accounting value.

Financial Applications

• Extinction of the regressive table: income from financial investments in fixed or variable income, including day-trading, earned by individuals or legal entities, will be subject to IRRF at the rate of 15%, regardless of the investment term.

• The exemption of net gains of up to R$20,000 earned on the stock exchange is maintained.

Investment Funds

• Closed-end funds: will be subject to the come-cotas tax every November or upon redemption, at the rate of 15%, except for equity funds. The rate may be reduced to 10% if the shareholder chooses to pay the tax in advance (until 13.01.2022).
• Open-ended funds: institution of a single rate of 15% and come-cotas only once a year, in November (currently open funds have come-cotas every six months, in May and November).
• FIPs: Equity funds, that is, those not qualified as investment entities according to CVM rules, will be treated as legal entities for tax purposes. Income and gains earned by the equity FIP, and which have not been distributed to shareholders by January 1, 2022, will be subject to IRRF at the rate of 15%. The rate may be reduced to 10% if the taxpayer makes an advance payment by January 13, 2022.
• Real Estate Funds (FII): End of the IR exemption on income, which will now be taxed at the rate of 15%. In the event of the sale of shares, taxation will increase from 20% to 15%.