Brazil: Aspects of law No. 14.789/2023 – new tax treatment of investment grants

published on 11 January 2024 | reading time approx. 1 minute

On 29 December 2023, Law No. 14.789/2023 was published from Provisional Measure No. 1.1185/2023, which deals with the new tax treatment for Investment Grants when calculating Corporate Income Tax and Social Contribution on Net Profit, taking effect from 1 January 2024.

The previous law, in force until 31 December 2023, dealt with presumed credits and exemption/reduction of the calculation base, allowing the exclusion of amounts from the calculation of IRPJ and CSLL by keeping reserves in equity accounts, with the possibility of PIS/COFINS taxation of the subsidies.

With the publication of the new law, the main change applied was the repeal of Article 30 of Law No. 12.973/2014 and the institution of the tax credit for subsidies for the implementation or expansion of economic developments. On 2 January 2024, the Normative Instruction (issued by the Brazilian tax authority) No. 2.170/2023 was published, regulating qualification for the scheme to use the tax credit from the subsidy under the terms of the law.

In addition, we emphasize other aspects to be considered in the qualification for the tax credit:

Grant Revenues: only apply to implementation or expansion, even if the legal entity is qualified. Additionally, they must be related to the depreciation, amortization, or leasing of capital assets, to include in the calculation base for IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profits).
Restrictions on Revenues: Revenues must not exceed depreciation and amortization balances that exceed subsidy balances, and revenues derived from incentives from IRPJ and the tax credit for investment subsidies.

Other changes imposed by Law No. 14.789/2023:

JCP (Interest on Own Capital): The approved text provides for a reduction in the calculation base for JCP when excluding values, such as reserve for tax incentive and contributions not made between dependent parties.
PIS/COFINS: The law introduced a change allowing for the offsetting of credits for regular intermunicipal passenger road transportation services, except metropolitan, and regular interstate passenger road transportation services.
FIPE: Amounts received in the form of dividends or JCP’s derived from the disposal or liquidation of investments will not be included in the calculation base for IRRF (Withholding Income Tax), except in cases where they are reinvested in authorized assets within the CVM (Brazilian Securities and Exchange Commission) stipulated timeframe, in which case the corresponding amount will be transferred from the sub-account of the original investment to the sub-account of the new investment.