International Tax Newsletter - Janeiro 2024

Submission of the 2024 Brazilian Income Tax Return already has a defined date

The 2024 Brazilian Income Tax Return (IRPF) must be submitted between March 15th and May 31st. In total, taxpayers will have two and a half months to comply with the obligation. 

In a statement, the Federal Revenue informed that, from 2024, this will be the fixed period for submitting the declaration. 

This means that the taxpayer must plan for the coming years to always declare between March 15th and May 31st. 

The statement is as it follows: “From this year onwards, the submission of personal income tax returns will take place between March 15th and May 31st.” 

Taxpayers who received taxable income exceeding R$28,559.70 in 2023, around two minimum wages per month, are required to submit the declaration. A significant change is that from this year onwards the Income Tax exemption range will be increased from R$1,903.98 to R$2,112.00. 

With this change, 13.7 million individual taxpayers will be exempt from the tax, according to the Federal Revenue Service. With this change, 13.7 million individual taxpayers will be exempt from the tax, according to the Federal Revenue Service. 

In addition, a discount of R$528 will be granted on the tax paid directly at source for all taxpayers who opt for the simplified model.

Port development incentive program is extended for 5 years

Fundamental for the development and promotion of the port sector, the Chamber of Deputies approved on December 22nd, the extension of the Tax Regime to Incentive the Modernization and Expansion of the Port Structure (Reporto). The benefit will be extended for five years and will strengthen the investments and incentives necessary to make the country competitive in large international markets. The proposal goes to President Lula for approval.

Created almost two decades ago, Reporto exempts import taxes on machinery, equipment, spare parts and other goods by companies and concessionaires in the modal. With the renewal of the regime, the expectation is that the sector will increase its production and experience considerable growth in the coming years. In the first five months of 2023, Brazilian ports handled 495.8 million tons of cargo, 4.4% higher than the volume recorded in the same period of 2022.

At the beginning of November, Silvio Costa Filho and the Minister of Finance, Fernando Haddad, met to discuss the extension of the benefit. During the meeting, the MPor holder highlighted the importance of extending tax relief to boost investments in the sector responsible for 95% of the country's foreign trade flow, which represents 80% of the national GDP.

Before being considered by the Chamber, the extension of the Reporto was debated and approved by the Economic Affairs Committee (CAE) of the Federal Senate. During the debate, the senators classified it as one of the most important matters for the country's development and essential for boosting the economy.

Law changes moment of option for the taxation regime in supplementary pension

Participants in supplementary pension plans in Brazil will be able to opt for the definitive taxation regime until the moment they obtain the benefit or make the first redemption. The change is in Law No. 14,803, sanctioned January 11th, by President Luiz Inácio Lula da Silva. Until then, this option had to be made by the last business day of the month following entry into the plan, making the decision process more complex and uncertain for the participant.

The measure amends Law No. 11,053/2004 and allows participants in supplementary pension benefit plans to exercise the option for the definitive taxation regime until the moment they obtain the benefit or request the first redemption. In this taxation regime, decreasing rates are applied depending on the period of accumulation of resources, which start at 35% (less than two years) and can reach 10% (more than ten years).

The change was included in the final report of the Social Security Transition Group, delivered to President Lula in December 2022. The expectation is that the change will contribute to the promotion of supplementary pensions and attract more participants to the Regime.

“Behavioral economics studies demonstrate that complex issues result in postponement or inertia in decision-making, to the detriment of stakeholders. For this reason, we support the simplification brought by the project, which will encourage the entry of new participants into supplementary pensions, increasing the formation of pension savings and the future payment of income to citizens”, explains the Secretary of Own and Complementary Regime, Paulo Roberto Pinto.

Brazil Imposes Individual Income Tax on Prizes Obtained from Fixed-Odds Bets

Through Law 14,790/2023, Brazil has implemented new tax and regulatory frameworks for both online and in-person betting, as well as sporting events and online gaming, encompassing fixed-odds bets and fantasy sports. In terms of taxation, the net prizes derived from fixed-odds bets and fantasy sports are now subject to individual income tax (IRPF) at a rate of 15%.

Additionally, a 12% rate is applied to the gross gaming revenue, defined as the total revenue generated from all games after the payment of prizes to players and the corresponding income tax on the awards. Notably, 88% of this gross gaming revenue can be utilized to cover the operational costs and maintenance expenses incurred by the betting operator. Furthermore, operators are obligated to comply with various other taxes established by the Brazilian system, including corporate income tax (IRPJ), social contribution on net profits (CSLL), PIS/COFINS, and the tax on services (ISS).

From a regulatory standpoint, the legislation mandates that companies must secure operator authorization, with specific regulations outlining the minimum requirements for eligibility issued by the Ministry of Finance. Only companies established in Brazil that meet these regulatory requirements will be eligible to operate fixed-odds betting. Moreover, in accordance with Law 14,790/2023, such companies are required to have at least one Brazilian partner holding a minimum of 20% of the corporate capital.

The law, published in the Official Gazette on December 30, 2023, is effective as of its publication, except for certain provisions related to regulatory aspects. These provisions will come into effect upon the publication of the regulations to be issued by the Ministry of Finance, which will further delineate the specifics of compliance, advertising, penalties, and other regulatory aspects. Importantly, the legislation explicitly prohibits match-fixing.

Federal District and ten other states will have an increase in ICMS

The Tax on Circulation of Goods and Services (ICMS) will increase in the Federal District and in ten other states by up to 2.5 percentage points in 2024. Given this increase, prices should rise and directly impact the Consumer Price Index (IPCA). Among the states of the Federation that will increase the ICMS rate are:

• Ceará
• Paraíba
• Pernambuco
• Tocantins
• Rondônia
• Distrito Federal
• Maranhão
• Bahia
• Rio de Janeiro
• Paraná
• Goiás

These same states are waiting for the tax increase until April.  By state, Pernambuco had a rate going from 18% to 20.5%, while the Federal District went from 18% to 20%, in January. It is worth highlighting that the decision was taken mainly due to the original tax reform project. 

In the original tax reform project, it provided that the portion allocated to the states in the division of the new collection of the Tax on Goods and Services (IBS) would be calculated based on the average ICMS collection between 2024 and 2028, however the provision was excluded from the text end of the approved reform.

The text of the tax reform was up for debate and, at the time it was in the Federal Senate, after approval in the Chamber of Deputies, it was added to the text, also as a criterion for the proportion of IBS sharing.