The Income Tax (IR) reform proposal approved by the Chamber of Deputies makes some changes to the investment taxation rules. Among the main changes is the return of the taxation of dividends on investment in shares, with a 15% rate.
Several points of the original proposal submitted by the government, however, were left out. The approved text maintains, for example, the regressive rate of 22.5% to 15% or 20% (short term) on products such as fixed income and multimarket funds, while the original wording of the project proposed the unification of 15%.
The text now goes to the Senate. Only after analysis by the senators will the reform of the IR be sent for presidential approval and, then, it can take effect.
See how the taxation of investments is with the income tax reform approved by the Chamber.
Income Tax Reform: Taxation on the Stock Exchange
Taxation on profits and dividends
According to the text, profits and dividends will be taxed at 15% as Income Tax at source from January 1, 2022, with the exception of Simples companies and presumed profit with income of up to R$ 4.8 million. The government’s original proposal established a 20% rate, but it was changed in the final vote in the Chamber.
Dividends of up to R$20,000 distributed by small businesses and those distributed among members of the same economic group are also exempt from collection.
Other exceptions are for companies that receive funds from real estate developers subject to the special taxation regime for the allocated equity; and supplementary pension funds.
Dividends are the portion of a company’s profits distributed to shareholders. They were exempt from income tax since 1995, but the government decided to re-tax them – this is the most controversial point of the reform.
Interest on Equity (JCP)
The reform provides for the end of the deductibility of Interest on Equity (JCP), a way of remunerating shareholders that brings tax advantages to companies, albeit with 15% withholding income tax for those receiving it.
Interest on capital is a mechanism created in the 90’s that intended to stimulate investments through capital contribution. Several sectors of the economy are against the end of the JCP.
The Chamber maintained the changes suggested in the government’s proposal. The rate on the purchase and sale of shares continues to be 15%, but with an exemption on sales of shares of up to R$60 thousand per quarter. Currently, the monthly exemption is for assets sold up to the total value of R$ 20 thousand.
The same 15% tax is now applicable on day trade transactions (share purchase and sale transactions carried out on the same day). Under the current rule, the rate in this case is 20%.
Another change concerns the calculation and clearing of stock exchange transactions. According to the rules in force, the calculation is monthly and can only be made with operations of the same nature and rate. With the change, the calculation becomes quarterly and offsets can be made freely.
For stock investment funds, the income tax rate was set at 15% only at the time of redemption. The minimum percentage of the fund’s portfolio that must be invested in shares or other similar papers, however, goes from 67% to 75%.
Regressive rate for fixed income
Taxation on fixed income investments continues with a regressive table. The government had proposed to unify the tax on assets such as Treasury Direct, Certificates of Bank Deposits (CDB), fixed income funds and multimarket by 15%, but the proposal was rejected by the deputies.
Thus, the current rule remains in force, which provides for a regressive rate of 22.5% to 15% according to the investment term.
- Up to 180 days (6 months) – 22.5%
- From 181 to 360 days (1 year) – 20%
- From 361 to 720 days (2 years) – 17.5%
- Over 720 days (2 years) – 15%
Fixed income assets and real estate funds
Fixed income assets such as Letters of Credit (LCI), Letters of Credit for Agribusiness (LCA), Certificate of Real Estate Receivables (CRI), Certificates of Agribusiness Receivables (CRA), Real Estate Investment Funds (FII) and Investment Funds in Agro-industrial Productive Chains (FIagro).
In relation to real estate funds traded on the stock exchange, the government’s proposal foresaw to end the exemption from income tax on dividends and change the rate on capital gains from 20% to 15%. The change, however, was rejected by the deputies.
‘Come-quotes’ on investment funds
The so-called “come-cotas” will only be applied in November and will also be levied on exclusive closed-end funds, aimed at large investors, at a 15% rate.
The come-quota is an anticipation of the tax to be paid by the fund investor. If there is a withdrawal before the minimum period, the shareholder pays the difference in tax in relation to the total amount due.
Until then, this mechanism was only valid for fixed income and retail multimarket funds, being applied twice a year, in May and November, at a rate of 20% for long-term investments and 15% for short-term investments.
Income tax reform should generate losses of R$22 billion a year, say finance secretaries