Tax Reform and Income Tax: what changes?

The preliminary text of the Income Tax Reform was delivered by the Minister of Economy, Paulo Guedes, to the President of the Chamber of Deputies, Arthur Lira, at the end of June. However, after significant changes in what was originally proposed, the text was only voted on by the chamber on 09/01/2021. Find out the financial impacts this can have on your business below.

With 398 votes in favor and 77 against, the Chamber approved the basic text of the tax reform, which still needs to be approved by the Senate and sanctioned by President Jair Bolsonaro. However, the text already generates controversy among economists and the reform must act on three fronts: Individuals, Legal and Investments. Check out what changes in each sphere below.

Tax exemption range is increased by 31% for Individuals

On the official government portal, the information is that “The exemption limit is increased by 31%. The intermediate steps of the scale are also adjusted, on a decreasing scale with the income level. Six million taxpayers will be completely exempt from the tax”. Also according to the portal, with the tax reform of the income tax, individuals with income of up to R$2,500.00 now have income tax exemption and the rate of 27.5% starts at R$5,300.01. Before, to be exempt, the taxpayer would have to have a monthly income of up to R$ 1500.00.

What changes for the Legal Entity

The Income Tax Reform stipulates the reduction of the general tax rate for legal entities, which would fall from 15% to 6.5% in 2022 and 5.5% in 2023. The Social Contribution on Net Income will have a reduction of up to 1 .5%. As for the taxation of profits of large companies whose total rate is currently 34% (25% of IRPJ + 9% of CSLL), the approved text with modifications provides for a reduction to 26% (18% of IRPJ + 8% of CSLL). For smaller companies that have up to R$ 20 thousand in monthly income, the rate that is currently at 24% (15% IRPJ + 9% CSLL) drops to 16% (8% IRPJ + 8% CSLL). Interest on equity ceases to exist and payment in shares becomes deductible upon settlement in cash when the nature of the expense is deductible.

How the income tax tax reform impacts investments

One of the main changes related to investment is the end of the 20% rate for buying and selling shares on the same day, the well-known day-trade, this rate becomes the only 15% for gains with investments in variable income. Taxation of dividends now has a rate of 15% on the amount distributed to individual investors.

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