Legislative changes on the cusp of 2022 and into the New Year – Payroll exemption, ICMS DIFAL and others

The year-end tax changes represent a recurring legislative practice, in view of the budgetary procedures/deadlines and the application of the non-retroactivity principle – i.e., the impossibility of collecting taxes in the same financial year in which the law that instituted or increased them was published, depending on the nature of the tax.

For example, the extension of the ‘payroll exemption’ was enacted in an extra edition on December 31, 2021, while the new regulation of the rate differential in interstate operations (“DIFAL”) of the Tax on the Circulation of Goods and Provision of Services (“ICMS”) awaits presidential sanctioning in early 2022.

It is worth mentioning that the postponement of the publication of the Complementary Law related to ICMS DIFAL must be evaluated from the perspective of the non-retroactivity principle, as will be discussed further below.

As such, we list below the legislative changes that took place on the last day of 2021 and the topics that remain on the tax agenda for the beginning of 2022.

Changes at the end of 2021

Below we list some tax topics[1]  that were subject to legislative changes on December 31, 2021:

  • Payroll exemption: Law No. 14,288/21 extended the deadline for the social security contribution on gross revenue (“CPRB”) until December 31, 2023. In addition, the aforementioned Law maintained the 1% increase in relation to the incidence of COFINS-Import tax on the products described in article 8, §21 of Law No. 10,865/05 until December 31, 2023.
  • IRRF on aircraft leasing: Provisional Measure No. 1094/21 reduced to zero the rate of Withholding Income Tax (“IRRF”), between January 1, 2022 and December 31, 2023, in the event of payment to a legal entity domiciled abroad, as consideration for the leasing of aircraft or engines intended for aircraft, entered into by a regular public passenger or cargo air transport company. The IRRF rate will be increased from 1% to 3% as of 2024 (1% in 2024, 2% in 2025 and 3% in 2026).
  • Revocation of Reiq: As a way of offsetting the loss of collection with the reduction of the IRRF on the consideration for leasing, Provisional Measure No. 1095/21 revoked PIS, COFINS and PIS/COFINS-Import tax benefits related to the petrochemical sector (Special Regime for the Chemical Industry – “Reiq”).
  • New TIPI: Decree No. 10,923/21 approved the Table of Incidence of Tax on Industrialized Products (“TIPI”).
  • ICMS SP: The State of São Paulo introduced significant changes in the legislation on ICMS (tax on the circulation of goods and transportation and communication services) — for more information on the subject, please access the following link:

Payroll exemption

Law No. 14,288/21 amended Law No. 12,546/11 to extend the validity of the ‘payroll exemption’ system until December 31, 2023. With this, taxpayers from 17 (seventeen) sectors of the economy will be able to continue to choose, annually and irreversibly, how they wish to collect their social security contributions provided for in items I and III of article 22, of Law No. 8.212/91, that is, whether based on the payroll (rate of 20%) or gross revenue (rates of 1% to 4.5%, depending on the rules contained in the Law).

Topics for early 2022

We outline below some important tax issues for the beginning of 2022:

  • ICMS DIFAL: Congress approved a Complementary Law that regulates the collection of ICMS DIFAL, but the rule is pending Presidential sanctioning. More information below.
  • Validity Terms of Treaties to Avoid Double Taxation: The Treaties to Avoid Double Taxation signed by Brazil with Switzerland and the United Arab Emirates are effective as of January 1, 2022. It is worth mentioning that the United Arab Emirates continues to qualify as a jurisdiction with favored taxation, in accordance with Normative Instruction No. 1,037/10, which must be considered when analyzing tax incidences in conjunction with the provisions of the Treaty.
  • Treaty to Avoid Double Taxation signed with Singapore: The publication of a Presidential Decree to enact the Treaty to Avoid Double Taxation signed by Brazil with Singapore is pending.
  • Tax settlements: Ordinance PGFN/ME No. 15,059/21 reopened the deadlines for entry into tax settlement programs, including the Tax Recovery Program within the scope of the PGFN. The deadline for adhering to tax settlements remains open until 7 p.m on February 25, 2022, and February 28 for FGTS debts registered as active debt (not including amounts owed to individuals).

After numerous debates, the federal government issued statements as regards its intention not to immediately use other taxes (IOF, CSLL, etc.) to compensate for revenue losses resulting from the extension of the ‘payroll exemption’. However, taxpayers should not completely rule out the possibility of tax increases during the 2022 calendar year.

Therefore, for the time being, the daily IOF/Credit rates are back to the usual levels of (i) 0.0041% for corporate debtors and (ii) 0.0082% for individual debtors (in addition to the fixed rate of 0.38%), calculated according to the nature of the operation (defined amount vs. revolving credit). In addition, the Social Contribution on Net Income (“CSLL”) rates applicable to financial institutions return to the levels of 20% (i.e., banks of any kind) and 15%, as applicable, in accordance with article 3 of Law No. 7,689/88.


The National Congress approved Bill No. 32/21, to amend Complementary Law No. 87/96 (known as the Kandir Law) and include the collection of ICMS DIFAL. The text awaits Presidential sanction by January 11, 2022.

In brief summary, the drafting of this Complementary Law stems from the analysis of the subject (ADI No. 5,469 and RE No. 1287019/DF – Topic 1.093) by the Brazilian Supreme Court (STF), which decided that the collection would require the existence of a Complementary Law, based on article 146 of the Federal Constitution.

The STF modulated the effects of the aforementioned decision, in order to take effect from the financial year following the conclusion of the judgment (that is, from 2022). In practical terms, the STF granted a deadline for the approval of a Complementary Law to regulate the collection of ICMS DIFAL.

However, given the absence of a presidential sanction and the corresponding publication of the Complementary Law in 2021, the collection of ICMS DIFAL in 2022 remains obstructed, due to the principle of non-retroactivity applicable to ICMS, according to which the taxing entity is prohibited from charging taxes in the same financial year in which the law that instituted or increased them was published.

Therefore, in theory, ICMS DIFAL would only be valid in 2023, based on the sanctioning and publication of the corresponding Complementary Law in 2022, as well as the corresponding local regulation by the states. The STF even has a favorable understanding of taxpayers, in similar situations, regarding the application of the non-retroactivity principle.

It is known, however, that some states instituted regulations even before the approval of the Complementary Law, in order to enforce the requirement of ICMS DIFAL as early as 2022. Other states promise to institute regulations after the publication of the Complementary Law, enforcing the collection of ICMS DIFAL despite the principle of non-retroactivity.

In any event, the collection of ICMS DIFAL in the year 2022 seems to us to be highly questionable and taxpayers should be aware of undue demands on the part of federal entities.

Furthermore, the decision handed down by the STF, of invalidating the tax differential collection system in cases involving the end recipient consumer, may have its understanding applied to cases in which the states, even in the absence of previous regulation, increase the chances of payment of the rate differential, as is the case of acquisitions of assets and use or consumption by ICMS taxpayers.

Demarest’s Tax team is available to provider further information or clarification regarding the regulation of ICMS DIFAL and its consequences.

If you would like to know more about recent tax changes, please contact Demarest’s Tax team.

[1]Significant legislative topics. It is also worth mentioning that less significant topics and Tax Rulings were published on December 31, 2021. However, this newsletter aims to comment on the main legislative changes.