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Provisional Executive Ordem ("MP") 692/15: Amendments to the Law on Income Tax Payable on Capital Gains


9/24/2015 4:30 PM Demarest News

Provisional Executive Order (“MP”) 692/15:

Amendments to the Law on Income Tax Payable on Capital Gains

 
Provisional Executive Order no. 692 (“MP 692”) published this week increased the income tax payable on the capital gain obtained by individuals upon the sale of assets or rights of any nature, and legal entities upon the sale of non-current assets and rights, as commented below.
 
1 - Individuals - Residents of Brazil
 
The capital gain obtained upon the sale of assets and rights by individuals, which is currently subject to a 15% income tax rate, will be subject to the following income tax progressive rates according to the capital gain obtained:
 
Capital Gain (R$) Rate
​Up to 1,000,000.00​15%
​From 1,000,000.00 to 5,000,000.00​20%
​From 5,000,000.00 to 20,000,000.00​25%
Over 20,000,000.00​30%
 
 In case of installment sale of the same asset or right, the capital gain obtained in the first operation must be added as of the second operation to the capital gain obtained in the following operations for purposes of determination of the applicable rates.

2- Legal Entities – Domiciled in Brazil

These new income tax progressive rates will also be applied to the capital gain obtained by certain legal entities upon the sale of non-current assets and rights.

The legal entities not covered by this new rule on capital gain taxation are those subject to taxation based on the taxable-income method (“lucro real”), estimated-profit method (“lucro presumido”) or arbitrated-profit method (“lucro arbitrado”), which continue subject to the current income tax rule (that is, the capital gain is considered part of the taxable income subject to the basic rate of 15% plus the additional rate of 10%).
 
3 – Effect of the New Rule

MP 692 will take effect on January 1, 2016, assuming that it is eventually passed into law in 2015.

4 – Additional Comment – Non-Resident Gain

MP 692 makes no express mention to the capital gain obtained by individuals non-residents of, or legal entities not domiciled in, Brazil, however there are already ongoing discussions about the possibility of the extension and form of application of this rule on the income tax payable on capital gains.

We will be pleased to provide you with further information.

Demarest Advogados

Eloisa Curi​+55 11 3356-1806ecuri@demarest.com.br
​Catarina Rodrigues​+55 11 3356-1619carodrigues@demarest.com.br
​Carlos Eduardo Orsolon​+55 11 3356-2186ceorsolon@demarest.com.br

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