Brazil's Income Tax Reform: Implications for Incentivized Bonds and High-Income Investors

Strategic Insights -

As Brazil debates its income tax reform bill, a provisional presidential decree may have a significant impact on how the effective minimum tax is calculated for high-income individuals. The decree ends the income tax exemption on incentivized bonds, such as real estate and agribusiness credit bills and certificates, which will be taxed at a 5% rate starting in 2026. This change may result in an "indirect increase in taxation" for high-income investors, according to experts.

Key Takeaways:

  • The provisional presidential decree (MP 1,303) ends the income tax exemption on incentivized bonds, such as LCIs, LCAs, CRIs, and CRAs, which will be taxed at a 5% rate starting in 2026.
  • The income tax reform bill (PL 1,087) proposes an effective minimum tax rate to offset the expansion of the income tax exemption threshold to R$5,000 per month, which currently excludes income from tax-exempt securities.
  • Tax experts, including Luiz Gustavo Bichara and Luca Salvoni, warn that the combined effect of MP 1,303 and PL 1,087 will result in an even more significant burden on taxpayers, as the effective minimum tax rate may increase to 10%.
  • Leonardo Aguirra de Andrade argues that the government should propose to exclude incentivized bonds from the tax base for the effective minimum tax, to maintain alignment with the original bill.
  • The agribusiness caucus and lawmakers aligned with the real estate sector may pressure Congress to reject the end of the exemption for incentivized bonds.
  • The Finance Ministry expects to raise R$25.22 billion in 2026 from the effective minimum tax on high-income individuals, without income from incentivized bonds.
  • The 5% tax on incentivized bonds will not apply to existing holdings, which will remain tax-exempt, according to Daniel Loria.

Statistics:

  • R$25.22 billion: expected revenue from the effective minimum tax on high-income individuals in 2026
  • R$8.9 billion: expected revenue from a 10% tax on dividends sent abroad in 2026
  • 5%: tax rate on incentivized bonds starting in 2026
  • 10%: possible effective minimum tax rate for high-income investors with incentivized bonds
  • 2026: year when the income tax exemption on incentivized bonds will end
  • R$5,000: new income tax exemption threshold proposed in the income tax reform bill

Sources:

  • Valor:
  • Bichara Advogados: Luiz Gustavo Bichara, partner
  • Cascione Advogados: Luca Salvoni, partner
  • Andrade Maia Advogados: Leonardo Aguirra de Andrade, partner and professor at the Brazilian Institute of Tax Law (IBDT)
  • Loria Advogados: Daniel Loria, partner and former director of the Special Secretariat for Tax Reform at the Finance Ministry