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Brazil: Amendments to interest on net equity not passed


Alvaro Pereira

Mark Conomy

On March 10 2016, the Brazilian Congress published Act No 5 of 2016, which provided that Provisional Measure 694 (PM 694/2015) expired on March 8 2016 and would not be converted into law. PM 694/2015 was released on September 30 2015, and was principally concerned with amendments to the calculation basis and withholding tax rates applicable to interest on net equity payments (INE).

By way of background, INE is an alternative way of remunerating a shareholder for the investment made in Brazilian companies, calculated based on their net equity. The proposed changes intended to increase the general withholding tax rate on payments to non-tax haven jurisdictions from 15% to 18%. Further, it sought to set a further limit on the calculation base on the INE payment.

Taxpayers should continue to monitor the developments of this issue as it is possible that the proposed amendments will be introduced into a future Provisional Measure or legislative project.

Changes to Brazil’s capital gains tax rates converted into law

On March 16 2016, the President sanctioned the conversion into law of Provisional Measure 692 (PM 692/2015) by Law No 13,259/2016. The key issue contemplated by PM 692/2015 was the change to capital gains rates for individuals and non-residents.

Pursuant to Law No 13,259/2016, capital gains earned by individuals arising on the alienation of Brazilian assets and rights of any nature are subject to income tax at the rates below. Currently, the Brazilian tax legislation provides that non-residents should be subject to the same rules as Brazilian individuals:

  • 15% on the portion of the gain not passing R$ 5 million;

  • 17.5% on the portion of the gain exceeding R$ 5 million and not passing R$ 10 million;

  • 20% on the portion of the gain exceeding R$ 10 million and not passing R$ 30 million; and

  • 22.5% on the portion of the gain that passes R$ 30 million.

Further, capital gains derived by a company, arising on the alienation of non-current assets or rights, should also be subject to the above rates – except for companies which apply the actual, presumed or arbitrary profit methods (being the key methods of calculating tax for Brazilian entities).

The text of the law provides that the law should enter into effect from the date of publication, producing effects from January 1 2016. While a number of paragraphs specifically dealing with how the law would treat capital gains in relation to transactions occurring before December 31 2015 were removed from the final text converted into law, there remains a question around the validity of the law during 2016, where the amendments result in an increase in tax due.

Taxpayers undertaking or intending to undertake reorganisations, sales or acquisitions of Brazilian investments should consider how the changes to the rates may impact their transactions. Further, taxpayers should monitor challenges in relation to the constitutionality of the law in respect of transactions resulting in an increase to the tax due for the 2016 tax year.

Alvaro Pereira ( and Mark Conomy (


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