International Tax Newsletter - Abril 2024

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Tax reform regulatory project is submitted

Four months after the enactment of the tax reform, the government sent the first complementary bill regulating taxes on consumption. The Minister of Finance, Fernando Haddad, delivered the proposal to the president of the Chamber of Deputies, Arthur Lira, in the early evening of April 24th.

With 360 pages and around 500 articles, the proposal foresees an average Value Added Tax (VAT) rate of 26.5%, which may vary between 25.7% and 27.3%, informed the extraordinary secretary for Tax Reform, Bernard Appy. Currently, Brazilian goods and services pay, on average, 34% in federal, state and municipal taxes.

The Complementary Bill presented regulates the Tax Reform, establishing the Tax on Goods and Services (IBS) and the Social Contribution on Goods and Services (CBS) and defines the Selective Tax (IS) to discourage harmful goods. It highlights the importance of approving the matter and collaboration between federative entities. 

It also details the organization of the Project in three Books, covering general standards, customs regimes, tax refunds, rates, passive liability, and operationalization of IBS and CBS, including forms of collection and reimbursement of credits.

It is important to highlight that the text presented will still be analyzed by congress and several changes may be introduced until its final approval.

Bill that expands Income Tax exemption to 2 minimum wages is approved by the Senate 

In a session held on April 17th, the Federal Senate approved, by symbolic vote, a bill that aims to expand the Income Tax exemption range for taxpayers who earn up to two minimum wages at the current value (R $1,412), which is equivalent to R$2,824. The measure was approved after intense debates and discussions among the senators present.

During the discussions, a discount proposal that sought to further expand the Income Tax exemption to three minimum wages, totaling R$4,236, was rejected. This decision generated disagreements among parliamentarians, with the government defending the maintenance of the exemption only for two minimum wages.

A senator present at the session warned of the fiscal impact that this change could have, estimating a cost of R$59 billion. However, Senate advisors indicate that this value could be even higher, highlighting the need for more in-depth analysis on the topic.

Voting on the project took place symbolically, without individual counting of senators' votes. Despite this, the proposal received broad support from both government and opposition parliamentarians, reflecting relative unanimity in Congress regarding the issue.

In the Economic Affairs Committee (CAE), the government faced moments of tension, almost being defeated by a narrow margin of votes. However, it managed to maintain the original text of the project, guaranteeing exemption for workers who receive up to two minimum wages. This victory led the government to seek agreements and avoid possible risks in the plenary, aiming to avoid a billion-dollar fiscal impact.

Brazil postpones the requirement of passports from citizens coming from the USA, Australia and Canada

The new rule, that was supposed to start being effective on early January and then April 10th, was once more postponed through Decree #11.982/2024 – this time to April 10th, 2025.

The reason behind this decision, according to the government, is the necessity to fully implement the e-VISA, the 100% electronic visa that will be required. The new document will be available on the website https://brazil.vfsevisa.com and will cost USD 80,90. The requirement of the visa without a proper implementation of the new system could imply bad consequences for the country’s tourism.

The decision is based on the efforts of the government to treat other countries with a reciprocity. This way, since Brazilian citizens are required to carry a visa in order to entry these countries, the Ministry Foreign Affairs in Brazil is implementing the same exigences.

Bill regulates Manaus Free Trade Zone in tax reform →
A bill proposed provides for the regulation of tax reform in relation to operations carried out in the region.

The proposal aims to regulate the maintenance of the competitive advantage of the Manaus Free Trade Zone in tax reform and establishes the following measures:

  • Non-levy of IBS (tax on goods and services) and CBS (contribution on goods and services) on export operations of goods and services to the Manaus Free Trade Zone, including internal ones;
  • Incidence of IBS and CBS on products manufactured in ZFM, the collection of which must be carried out by the respective purchaser, located outside this region.
  • Presumed CBS credit of 1.99%, intended for legal entities located outside the ZFM, purchasing products manufactured in that region;
  • Presumed IBS credit, intended for companies established in the ZFM, holding projects approved under SUFRAMA, in compensation for the extinction of the ICMS;
  • Maintenance of the IPI for products whose production in the ZFM represents 2/3 (two thirds) of national production, in units produced, considering the calendar year 2023.

Chamber of Deputies approves complementary bill to make ICMS collection by states more flexible 

The Industry, Commerce and Services Committee of the Chamber of Deputies deliberated favorably on the Complementary Bill (PLP #257/23), which proposes allowing states with a share of the Brazilian Gross Domestic Product (GDP) greater than 1% to adopt the sub-limit of R$3.6 million in revenue, for the purposes of collecting Tax on the Circulation of Goods and Services (ICMS). The measure, now optional, aims to positively impact state fiscal management.

Currently, companies with revenues above R$3.6 million are required to calculate and collect ICMS and Service Tax (ISS) in accordance with state and municipal regulations, while other taxes follow the Simples Nacional regime tables, a more attractive option.

The sublimit, established by Complementary Law #155/16, aims to increase the collection of subnational entities, modifying the Micro and Small Business Statute. The measure offers flexibility, allowing state governments to adjust their policies in favor of small businesses.

The initiative aims to prevent companies that exceed the limit of R$3.6 million in annual revenue, but still qualify for Simples (up to R$4.8 million), from being forced to pay ICMS and Service Tax (ISS). in a more complex way, which would result in increased costs and bureaucracy.

Over 40% of taxpayers submitted their income tax return to the Brazilian Federal Revenue Service

In almost 40 days, over 40% of taxpayers submitted their income tax return. As of April 23rd, the Federal Revenue Service of Brazil (RFB) had received 17,337,749 income tax returns. This is equivalent to 40.3% of the 43 million income tax returns expected for this year.

The deadline for submitting the income tax returns began on March 15th and runs until May 31st. The new deadline, according to the RFB, was necessary for all taxpayers to have access to the pre-filled income tax return, which is sent two weeks after the delivery of income statemet by employers, health plans and financial institutions.

According to the RFB, 75.7% of the income tax returns submitted so far will be entitled to receive a refund, while 13.8% will have to pay Income Tax and 10.4% have no tax to pay or receive.