Brazil-Iceland tax treaty signed
On October 14th, 2024, Brazil and Iceland entered into a new tax treaty. This treaty requires approval from the congresses of both countries before it can take effect.
The new agreement incorporates a principal purpose test along with a limitation on benefits clause. Additionally, it features a provision regarding fiscally transparent entities, indicating that income generated by or through such entities will be regarded as income of a resident in a contracting state, provided that the income is recognized as the income of a resident for tax purposes by that state.
The treaty outlines the following withholding tax rates:
·Dividends: A 10% withholding tax rate applies to dividends paid to a company that has held at least 15% of the payer company’s capital directly for a continuous period of 365 days that includes the dividend payment date. In other cases, the rate typically will be 15%.
Interest: A general withholding tax rate of 15% will be imposed on interest payments.
Royalties: A 10% rate will be applied to royalty payments.
Fees for Technical Services: A 10% withholding tax rate will apply to payments for managerial, technical, or consultancy services, as well as technical assistance. Unlike most of Brazil's existing tax treaties, which classify fees for technical services as royalties, this treaty includes a distinct article allowing the source state to levy withholding tax on such fees.
Even though Brazil and Iceland have already signed the Treaty that seeks to avoid double taxation on income and prevents tax evasion and avoidance in both countries, to come into force, the document still needs to be ratified by the Brazilian Congress.
Brazilian Federal Revenue Service warns of the end of the deadline for joining the Zero Litigation Program 2024
The Brazilian Federal Revenue Service has issued a new alert to taxpayers regarding the deadline to adhere to Transaction Notice #1, dated March 18th, 2024, which regulates the Zero Litigation Program 2024. This program, which aims to offer special conditions for the regularization of tax debts, began on April 1st, 2024, and interested parties have until 6:00 p.m., Brasília time, on October 31st, 2024, to formalize their adhesion.
The Zero Litigation Program 2024 offers a unique opportunity for taxpayers to regularize tax debts in administrative tax litigation, as long as the amount per process does not exceed R$50 million. The facilitated conditions include the possibility of a reduction of up to 100% in the amounts corresponding to interest, fines and legal charges, respecting a limit of up to 65% on the total amount of the credit under negotiation.
Among the benefits offered by the program, the possibility of paying off the outstanding balance in up to 120 installments, with monthly and successive payments, stands out, which allows greater flexibility for companies and individuals facing financial difficulties. In addition, taxpayers can use tax loss credits and the negative calculation basis of the Social Contribution on Net Income (CSLL) to reduce up to 70% of the amount due, after discounts have been applied.
Commission approves project that changes rule on payment of income tax on interest sent abroad
The Finance and Taxation Committee of the Chamber of Deputies approved Senate Bill #2490/22, which changes the rules for withholding and collecting Income Tax (IR) on interest remitted abroad due to installment purchases of goods made by Brazilians.
According to the proposal, the IR taxpayer will be the one who receives the money abroad, since the tax is levied on the interest remitted. However, it will be up to the sender to withhold the IR at source and make the payment in Brazil on behalf of the taxpayer.
The approved text changes Decree-Law 401/68, which deals with Income Tax on interest remitted in financing transactions with a foreign entity. Currently, the tax is already paid by Brazilian individuals or legal entities.
According to the president of the Senate, Rodrigo Pacheco (PSD-MG), the change is necessary because Decree-Law 401/68 is in conflict with the National Tax Code, according to which the event that triggers the IR, in these cases, is the receipt of interest, not its payment.
The bill is being processed in a conclusive manner and will still be analyzed by the Committee on Constitution and Justice and Citizenship. To become law, it will also have to be approved by the Chamber..
Brazilian Foreign trade begins a new phase with the start of operations of Duimp
The Brazilian Federal Revenue Service (RFB), in partnership with the Secretariat of Foreign Trade (Secex), has initiated a significant transformation in Brazilian foreign trade with the launch of the Single Import Declaration (Duimp). This new platform, an integral part of the Single Foreign Trade Portal, replaces the old Siscomex LI/DI system and promises to simplify import processes, reduce costs and increase the country's competitiveness on the global stage.
The transition to Duimp began on October 1st, with a gradual implementation that will last until 2025, allowing more than 50,000 importing companies to migrate their operations in a safe and controlled manner. The announcement was made during a press conference in Brasília, where the acting president and Minister of Development, Industry, Commerce and Services, Geraldo Alckmin, highlighted the importance of the initiative for the future of Brazilian foreign trade.
The implementation of the new system will be carried out in three phases. The first, which will take place until December 2024, includes maritime operations without licensing and the special Recof, Repetro and Temporary Admission regimes. The second phase, scheduled for the first half of 2025, will expand to air operations and regimes such as Drawback, while the third phase, in the second half of the year, will cover land operations and the Manaus Free Trade Zone.
The Federal Revenue Service and Secex emphasize that the initiative is not just a technical modernization, but a revolution that positions Brazil more competitively on the global stage. With completion scheduled for 2025, the new system will bring direct benefits to importing companies, strengthening the business environment and promoting the country's economic growth.
Government meets with banks to discuss taxing millionaires, betting market and tax reform
The government met on October 16th, with representatives from the Brazilian Federation of Banks (Febraban), Itaú Unibanco, Bradesco, Santander, BTG Pactual and Banco Safra to discuss bank credit in the country, the activities of betting companies, the taxation of large fortunes and the regulation of tax reform.
The Brazilian President is also expected to discuss at the meeting one of the measures being considered by the government as a way of compensating for the increase in the Income Tax exemption, which would be a new tax on millionaires, in order to comply with the campaign proposal to increase the exemption for those who earn up to R$5,000 per month.
This taxation of large fortunes is still an initial proposal and was presented by the Minister of Finance, Fernando Haddad, and would focus on Brazilians who earn more than R$1 million per year. Although the topic has gained repercussion, this proposal is only one of those being considered by the government to compensate for the IR exemption.
The meeting should also discuss the regulation of sports betting, known as bets, a topic of concern for Febraban, which reinforces the financial impact that this activity has on the income of Brazilians and also raises the issue of high default rates in the country.
Tax Reform: Complementary Bill approved by the Chamber of Deputies and forwarded to the Senate
The final text of the second Complementary Bill (PLP) of the Tax Reform, PLP 108/2024, was approved by the Chamber of Deputies on October 30th, 2024, after considering the highlights and amendments presented to modify the base text approved on August 13th, 2024.
Important changes were included in the approved final text, which removed the incidence of the Tax on Causa Mortis Transmission and Succession (ITCMD) in the cases indicated below:
Financial contributions capitalized in the form of private pension plans – which includes the Free Benefit Generating Plan (PGBL) and the Free Benefit Generating Life Plan (VGBL); and
Corporate acts that result in disproportionate benefits to partners that have been implemented out of liberality and without a business justification that can be proven, which includes the disproportionate distribution of dividends, disproportionate spin-offs and capital increases/reductions at different prices (involving related parties).
All other rules included in the base text regarding the ITCMD and the Tax on the Transfer of Real Estate (ITBI) were maintained.
Another important move was the rejection of Plenary Amendment #08, which intended to establish the Tax on Large Fortunes (IGF), which would be levied annually on assets exceeding R$10 million, considering assets located in Brazil and abroad, at progressive rates of 0.5% to 1.5%.
After being reviewed by the Constitution, Justice and Citizenship Committee (CCJ), the final text will be published and sent to the Federal Senate for a single-round vote. If it is not changed, it will be sent to the President of the Republic for approval or veto. If the Senate makes any changes, the text must be sent to the Chamber of Deputies for final approval before the presidential decision.
