Companies licensing or transferring IP rights to their Brazilian affiliates are currently subject to limits on royalties, arising from the tax deductibility-related legal restrictions imposed by the Brazilian legal framework. Due to the imminent coming into force of Law 14.286/21 on December 30, 2022, companies will now be allowed to agree on any percentage of royalties, following market practices, even though tax deductibility limitations will still apply.
This Law is related to the New Legal Framework for Foreign Exchange and International Capital Markets and aims to provide greater flexibility for the remittance of royalties abroad and facilitate technology transfer to Brazil. In addition to lifting limitations regarding royalties percentages between companies which have a corporate relationship (direct or indirect controllership), as mentioned above, other relevant topics are also encompassed in this new framework:
- The remittance of royalties abroad arising from technical, scientific, administrative assistance and similar activities will now only depend on proof of payment of income taxes.
- The obligation of submitting transactional documents to the Brazilian Central Bank has been removed, with only the obligation of records before the Brazilian Patent and Trademark Office being maintained.
- Authorization of private compensation of credits and amounts, between residents and non-residents, in events that are yet to be regulated by the Brazilian Central Bank has been granted.
- Greater flexibility regarding specific cases for payment in foreign currency related to obligations established in Brazil, even between companies located in Brazil. Nevertheless, it is important to highlight that there remains a prohibition on stipulating payment in foreign currency in leasing contracts for real estate located in Brazil.
Our Tax and Intellectual Property teams are entirely available to discuss any further clarification on this new Legal Framework.