Complementary Law No. 224/2025 – Reduction of Tax Incentives

On December 26, 2025, Complementary Law No. 224/2025 was published, establishing criteria for the granting, extension, and reduction of incentives and benefits of a tax, financial, and credit-based nature within the federal sphere, creating an aggregate cap for such benefits, imposing joint liability on third parties for the irregular operation of fixed-odds betting, and amending the Fiscal Responsibility Law (LRF) and various sectoral tax laws.

• Criteria, objectives, performance targets, evaluation rules, and procedures for the granting and amendment of incentives or benefits

The Law amends the Fiscal Responsibility Law (Complementary Law No. 101/2000) to require that any legislative proposal providing for the granting, expansion, or extension of any tax incentive or benefit that entails a waiver of revenue and whose beneficiary is a legal entity must be accompanied by:

• An estimate of the number of beneficiaries;
• A term of validity, which may not exceed five years (the term may exceed five years in the case of tax benefits associated with long-term investments, under the terms set forth in regulations and provided that the legislative proposal is accompanied by an estimate of the investments during the period in which the benefit will be in force, without prejudice to other applicable targets);
• Performance targets, which must be objective and quantifiable, covering economic, social, and environmental dimensions. The extension of tax benefits whose result targets have not been achieved or whose results have not been evaluated is prohibited;
• Transparency, monitoring, and results evaluation mechanisms in relation to the performance targets; and
• The expected impact on the reduction of regional inequalities, where applicable.

These rules also apply to legislative proposals that grant tax deferrals, except for deferrals that entail postponement of tax payment:

a) For a period equal to or shorter than 60 months, for payment in installments, counted from the date on which the tax would otherwise be due; or

b) Which, even if granted for a period longer than that provided in item “a” above, cover all taxpayers in a given region and are intended to address the effects of a situation of emergency or a state of public calamity recognized in accordance with applicable law.

These conditions do not apply to changes in the rates of the Export Tax, Import Tax, Tax on Credit, Foreign Exchange and Insurance Transactions, or on Securities, nor to the Tax on Industrialized Products (IPI).

In addition, the annual budget bill must include (i) a global estimate of tax, financial, and credit incentives and benefits for both individuals and legal entities; and (ii) an estimate of financial expenditures and mandatory and discretionary primary expenditures, for the year in which it is prepared and for the two subsequent fiscal years.

Supplementary Law No. 105/2001 (the “Supplementary Law”) was amended to allow the publication of the identification of beneficiary legal entities and the amounts enjoyed under incentives that result in a reduction of revenue or an increase in expenditure.

• Reduction of Tax Incentives and Benefits

The Supplementary Law also provides for the reduction of tax incentives and benefits related to PIS/Pasep, Cofins, IRPJ, CSLL, Import Tax (II), IPI, and the employer’s social security contribution, covering:

(i) Tax incentives and benefits listed in the tax expenditure statement of the 2026 Annual Budget Law (LOA);

(ii) Specific regimes, such as the presumed profit regime and the Special Regime for the Chemical Industry (REIQ); and

(iii) Presumed credits of IPI and PIS/Cofins, including on imports, and rate reductions established in sector-specific laws (including the reduction to zero of PIS/Cofins rates on agricultural products).

A “standard tax system” is defined for each tax (actual profit regime for IRPJ/CSLL, TIPI for IPI, statutory rates for PIS/Cofins and Import Tax, the Common External Tariff – CET – for Import Tax (II), and payroll as the tax base for employer social security contributions) as the benchmark for recomposition.

Reductions of tax incentives and benefits must be implemented cumulatively, as follows:

• Application of 10% of the standard rate in cases of exemption or zero rate;
• Application of 90% of the reduced rate plus 10% of the standard rate in cases of rate reduction;
• Application of 90% in cases of base reductions;
• In cases of financial or tax credits, including presumed or fictitious credits: utilization is limited to 90% of the original credit amount, with the unused portion being canceled;
• In cases of reduction of the tax due: application of 90% of the tax reduction provided for in the specific legislation granting the benefit;
• In cases of optional special or favored regimes in which taxes are levied as a percentage of gross revenue: a 10% increase in the gross revenue percentage;
• In cases of tax regimes in which the tax base is presumed: a 10% increase in the presumption percentages; and
• In the case of the presumed profit regime, the 10% increase in the presumption percentages applies only to the portion of annual revenue exceeding BRL 5 million.

The reduction of incentives and benefits does not apply to:

• Constitutional immunities;
• The Manaus Free Trade Zone, Free Trade Areas, and the National Basic Food Basket (Supplementary Law No. 214/2025);
• Benefits granted for a fixed term that have already fulfilled an onerous condition for their enjoyment, considering as an onerous condition exclusively the investment provided for in a project approved by the Federal Executive Branch by December 31, 2025;
• The Minha Casa Minha Vida and Prouni programs;
• Benefits enjoyed by non-profit entities;
• Ad rem rates, i.e., fixed specific rates;
• Tax compensations related to the granting of free broadcast time to radio and television stations, as provided for in the Political Parties Law and the Elections Law;
• The Social Security Contribution on Gross Revenue (CPRB);
• Benefits related to industrial policies for the information and communication technology (ICT) sector and for semiconductors; and
• Tax benefits whose granting law provides for an overall quantitative cap on the concession, subject to prior qualification or administrative authorization for enjoyment of the benefit.

The Law establishes a limitation on the granting, expansion, or extension of tax incentives and benefits if total tax incentives and benefits exceed 2% of GDP, their granting, expansion, or if extension is prohibited, unless offsetting measures are adopted for the entire duration. The calculation is based on the tax expenditure statement of the Annual Budget Law and specific regimes, using GDP as estimated by the Ministry of Finance.

• Tax liability related to the unlawful operation of fixed-odds betting

With respect to fixed-odds betting (“bets”), the Law provides that financial institutions and payment institutions that fail to adopt restrictive measures and allow transactions, or process them, even after formal notice from the competent federal authority, are jointly and severally liable with taxpayers for taxes levied on the operation of fixed-odds betting and on the receipt of net prizes.

It is also noteworthy that individuals or legal entities that advertise or promote lottery betting operators that have not been authorized to operate will likewise be jointly and severally liable for the taxes. This matter will be regulated by the Ministry of Finance.

• Sectoral changes

Among the sectoral changes, the Social Contribution on Net Profit (CSLL) will have new rates for the financial, insurance, payment institutions, and capitalization segments, with a phased implementation through 2028.

Accordingly, the CSLL rate for financial institutions will be 12% through the end of 2027, and 15% beginning in 2028 for payment institutions, organized over-the-counter market administrators, stock exchanges, and other companies as defined by the National Monetary Council.

Withholding Income Tax on interest on net equity will be increased to 17.5% as of the payment/credit date. The allocation of revenues from fixed-odds betting lotteries will be redefined, with transitional percentages in 2026 and 2027, and with monthly assessment and collection rules to be set by the Brazilian Federal Revenue Service (RFB).

The Law also amends provisions of Supplementary Law No. 214/2025 and establishes that one of the circumstances that may increase the penalties for tax crimes by one-third up to one-half is when the crime relates to immune assets, such as those arising from reciprocal immunity, books, newspapers, and sounds and films, as well as the assets of political parties and religious entities, among others.

Finally, the text removes the requirement of extension conditions involving revenue waiver for any eventual extension of the Universal Basis Taxation system.

• Entry into force and effectiveness

The Law enters into force on the date of its publication, with effects beginning on the first day of the fourth month following publication for the reduction of incentives related to taxes subject to the rule set forth in item “c” of Article 150, III, of the Federal Constitution (which prohibits the collection of taxes before ninety days have elapsed from the publication of the law that instituted or increased them—PIS, Cofins, IPI, and CSLL).

The effects of the change in the IRPJ rate will begin as of January 1, 2026.

For specific provisions, the effects will be immediate as of the publication date for adjustments related to unprocessed outstanding payables recorded as from 2019, and, for the remaining provisions, as of January 1, 2026.

Finally, certain provisions were vetoed by the President of the Republic, including those relating to outstanding payables and to the requirements for legislative proposals dealing with the granting, expansion, or extension of any financial or credit benefit to legal entities.