On September 22, 2015, the Brazilian federal government proposed
a new rule—Medida Provisória n. 692/2015 ("MP
692")—increasing the income tax rates applicable to
capital gains realized by certain taxpayers from a transfer or sale
of assets or rights in Brazil. Medidas Provisórias are
subject to review, comment and approval by the Brazilian Congress
prior to becoming law and being incorporated into the Brazilian
legal framework.
On December 9, 2015, a committee composed of members of both the
Brazilian Senate and Brazilian House of Representatives approved an
amended version of MP 692 (now Projeto de Lei de Conversão
n. 27, "PLC 27"). PLC 27 must be duly approved by the
Brazilian House of Representatives, the Brazilian Senate, and then
the Brazilian President in order to become law and enter into
force.
The most relevant changes made to the text of MP 692 were: (i)
reduction of the proposed capital gains rates in MP 692, which
ranged from 15 percent to 30 percent in the original text, and now
range from 15 percent to 22.5 percent as amended by PLC 27, and
(ii) increase in the proposed thresholds for each of the capital
gains rates originally proposed in MP 692.
The table below shows the differences between the rates and
thresholds of the original text in MP 692 and the amended text in
PLC 27.
|
Original Text (MP n. 692) |
New Text (Projeto de Lei de Conversão n. 27) |
|
15% on capital gains under R$ 1,000,000 |
15% on capital gains under R$ 5,000,000 |
|
20% on capital gains exceeding R$ 1,000,000 and up to R$ 5,000,000 |
17.5% on capital gains exceeding R$ 5,000,000 and up to R$ 10,000,000 |
|
25% on capital gains exceeding R$ 5,000,000 and up to R$ 20,000,000 |
20% on capital gains exceeding R$ 10,000,000 and up to R$ 30,000,000 |
|
30% on capital gains exceeding R$ 20,000,000 |
22.5% on capital gains exceeding R$ 30,000,000 |
Currently, capital gains are taxed at a rate of 15 percent for
Brazilian individuals and foreign legal entities that are not
subject to a specific tax regime.
Under the Brazilian Constitution, a Medida Provisória that
increases taxes becomes effective only in the year following the
one in which the measure increasing the applicable taxes was duly
approved by Congress and becomes law.
This means that in order for the increased capital gains rates now
reflected in PLC 27 to be applicable to capital gains realized in
2016, PLC 27 must be duly approved by both the Brazilian House of
Representatives and the Brazilian Senate, in separate sessions, and
then be approved by the Brazilian President, prior to the end of
2015. If PLC 27 does not becomes law until 2016, the current 15
percent capital gains rate will be applicable to any capital gains
realized in 2016 by Brazilian individuals and foreign legal
entities that are not subject to a specific tax regime.
We will continue to follow up and report on any developments in the
approval process of PLC 27. Please see our
Alert dated October 2015 for more information on MP 692.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.