Law No. 14,973, published on September 16, 2024, introduces significant changes to tax legislation.
Let’s review some of the changes introduced:
Reinstatement of Payroll Taxes
To provide context, Law No. 14,784/2023 had extended the payroll tax exemption, a fiscal benefit created by Provisional Measure No. 540, which was later converted into Law No. 12,546/2011.
In summary, this exemption replaced the 20% social security contribution on the payroll with a social contribution on gross revenue ("CPRB") with rates ranging from 1% to 4.5%.
Initially, the measure covered three sectors of the economy but was progressively expanded over the years to encompass 17 sectors.
It was initially scheduled to end in late 2023, but the congress passed Law No. 14,784/2023, extending the payroll tax exemption until the end of 2027. The President vetoed the bill in its entirety, but Congress overrode the veto, and the Law was enacted.
The government then issued Provisional Measure No. 1,202/2023, mandating a gradual reinstatement of payroll taxes. Additionally, Direct Action of Unconstitutionality (ADI 7,633) was filed in the Supreme Federal Court to challenge the constitutionality of Law No. 14,784/2023.
After negotiations between the Executive and Legislative branches, Law No. 14,973/2024 was finally enacted, which, among other things, established the gradual reinstatement of payroll taxes for 17 sectors of the economy.
In broad terms, the new Law maintains full exemption for 2024 and sets a gradual return to payroll taxation starting in 2025, with full reinstatement by 2028.
During the transition, the 13th salary remains fully exempt.
There are additional conditions. For instance, companies opting for the transitional rates between January 2025 and December 2027 must maintain an average number of employees equal to or greater than 75% of the average recorded in the previous calendar year.
What should taxpayers do?
- Taxpayers should review their activities since the reinstatement of payroll taxes will occur gradually, starting in 2025.
- Additionally, it is important to review the other conditions and requirements stipulated in the legislation.
- Companies opting for the transitional rates must ensure the maintenance of at least 75% of the previous year's workforce. Failure to meet this requirement will result in suspension of the tax exemption.
- Affected sector taxpayers should consider the possibility of judicially contesting the issue in advance.
- In fact, the frequent changes in criteria have created significant legal uncertainty. However, even with the exemption, certain legal challenges remain active.
Update of Real Estate to Market Value
Another significant change concerns the possibility for individuals or legal entities to update real estate assets to market value, benefiting from reduced taxation on capital gains for income tax purposes.
Currently, income tax on capital gains is levied at progressive rates, ranging from 15% to 22.5%.
Under the new rules, individuals residing in the country may opt to update the value of their real estate assets declared in their Annual Income Tax Return to market value, subjecting the difference (capital gain) to a definitive tax rate of 4%.
For legal entities, it is possible to update the value of permanent real estate assets to market value and tax the difference (capital gain) at a definitive rate of 6% for Corporate Income Tax (IRPJ) and 4% for the Social Contribution on Net Profit (CSLL).
In cases where the updated real estate assets are sold or written off within 15 years of the update, the capital gain must be calculated proportionally to the time elapsed from the update to the sale.
What should taxpayers do?
- Both individuals and companies should carefully consider the option to update the value of their real estate assets in advance, as well as the potential advantages and disadvantages that may arise from this update.
General Exchange and Tax Asset Regularization Special Regime (RERCT-Geral)
Another innovation introduced by the Law is the establishment of the General Exchange and Tax Asset Regularization Special Regime (RERCT-Geral), which allows for the declaration of assets or rights not previously declared or declared with omissions or inaccuracies, whether held in Brazil or abroad.
In summary, both individuals and legal entities residing or domiciled in Brazil may participate in the regime. They can regularize assets located in Brazil or abroad until December 31, 2023, provided these assets have a lawful origin but were either never declared or were declared incorrectly in previous years.
The deadline for joining RERCT-Geral is 90 days from the publication of the Law. Adherence must be done through a voluntary declaration of the patrimonial situation as of December 31, 2023, with the payment of a tax (as capital gains, at a rate of 15%) and a fine (100% of the tax amount).
Proper participation in the regime will result in the extinguishment of criminal liability for any offenses related to the undeclared assets.
What should taxpayers do?
- Taxpayers with undeclared assets or those declared with omissions or inaccuracies, either in Brazil or abroad, should consider the opportunity to regularize their situation.
For more information, contact the team at SAEKI ADVOGADOS.