Brazil’s Tax Landscape Transformation: INE Deductions, Investment Fund Reforms, and Tax Rate Options

September 15, 20230


In August 2023, Brazil embarked on a significant journey to reshape its tax landscape, introducing reforms that will leave a lasting impact on businesses and investors alike. This article explores the two pivotal tax developments that are at the heart of Brazil’s fiscal evolution: a bill proposing the reevaluation of Interest on Net Equity (INE) deductions and the revolutionary changes in the taxation of investment funds. Additionally, we will present a crucial table outlining different tax rate options for investment funds. 


INE Deductions: Rewriting the Rules 

Brazil’s tax system has long utilized INE deductions as a mechanism to attract investments, offering shareholders a deductible means of remuneration while addressing inflation-related investment value losses. However, in 31st  August of 2023, the Brazilian Government proposed a bill that, if enacted, the Brazilian tax landscape will be  poised for a major shift. 



INE, introduced in 1995 by Law 9,249/1995, was conceived to incentivize investments in Brazil. Its deductibility was aimed at attracting new investments and mitigating the effects of local inflation on investment values. Under the existing rules, specific conditions must be met for INE expenses to be deductible: 


  1. INE payments must align with the annual Long-Term Interest Rate (TJLP) applied to the Brazilian payee’s net equity, prorated accordingly. 
  2. Expenses cannot exceed the greater of 50% of current-year profits (pre-INE deduction) or 50% of accumulated profits and profit reserves. 


These calculations encompass various elements of a company’s net equity, including paid-in capital, capital reserves, profit reserves, treasury shares, and accumulated losses. 



If approved in 2023, the proposed reform is slated to take effect from January 1, 2024, and seeks to eliminate INE deductions. While this reform carries historical significance, it also prompts businesses to reassess their operations and financial strategies. As the legislative process unfolds, taxpayers must evaluate whether they need to act before year-end to adapt to these expected changes. 


Investment Fund Reforms: A New Taxation Era 

Brazil’s tax changes are not limited to INE deductions; they also extend to investment funds, reshaping how they are taxed and regulated. 


Key Changes 

Provisional Measure 1,184/23, issued on August 28, 2023, introduced substantial modifications to the taxation of investment funds, primarily focusing on closed-end and exclusive funds. Here are the key changes: 

  1. Periodic Taxation (Come-Cotas): PM introduces periodic taxation, known as “come-cotas,” for closed-end funds. This mechanism involves: 
    • A 20% tax rate for short-term funds with taxation ranging from 22.5% to 15% on liquidity events. 
    • A 15% tax rate for long-term funds with similar taxation ranges on liquidity events. 
      • The withholding income tax (WHT) will be charged in May and November each year. 
  2. Responsibility of Fund Administrators: Fund administrators will bear the responsibility for WHT on the disposal of quotas. Shareholders must prepay the WHT if requested by the administrator, and disposal will be prohibited if the administrator lacks the financial resources to fulfill the tax obligation. 
  3. Taxation of Specific Investment Funds: Certain funds, such as private equity funds (FIPs), stock funds (FIAs), and exchange-traded funds (ETFs), may be subject to exclusive taxation on liquidity events at a 15% rate if they meet specific criteria related to their investment portfolio composition. 
  4. Transition:  Taxation of unrealized gains accrued until December 31, 2023, in closed-end funds that were previously exempt will be determined based on the following guidelines, which the taxpayer can choose to follow: 

Conclusion: Navigating Brazil’s Fiscal Evolution 

Brazil’s tax landscape is undergoing a profound transformation. By understanding the broader context and implications of these reforms, tax professionals and investors can navigate these evolving policies with greater confidence. Stay tuned for more updates on Brazil’s ever-changing fiscal environment. 


Author:  Caroline Colucci, Junior Associate, TPA Global.


To keep updated on news, visit our Global News Page.

Don’t miss our most recent updates and articles; follow us on LinkedIn.



Leave a Reply

Your email address will not be published. Required fields are marked *

TPA Global

Diemerhof 42 - Tower 42
1112 XN Diemen