Government Agreement Shapes the Future of Payroll Taxation

In recent months, the topic of payroll tax relief in Brazil has experienced several notable twists and turns. In October 2023, the Senate approved the extension of the tax relief until 2027. However, this decision faced an obstacle in November when the Ministry of Finance vetoed the extension through Provisional Measure (MP) 1,202. The dispute intensified when Congress overturned this veto in December, an action the government challenged in the Supreme Federal Court (STF) in April 2024. The sequence of events in the STF included a temporary suspension of the tax relief by Minister Zanin, followed by a request for review by Minister Fux, pausing the judgment.

Amidst this sequence of legal and political events, a new turn occurred last Thursday (9th), when the Minister of Finance, Haddad, and the president of Congress, Pacheco, reached an agreement to reintroduce taxation on payroll starting in 2025. Below, we detail what this means and how the changes will be implemented:

 

Structure of the New Taxation

Starting in 2025, a gradual re-taxation of payroll will begin. Companies will start being taxed at 5% on the total salaries, with a progressive annual increase until reaching 20% in 2028. This new regime will replace the current option, where companies can choose to be taxed on gross revenue with rates ranging from 1% to 4.5%.

 

Implementation Schedule

·         2024: Maintenance of the current tax relief regime;

·         2025: Implementation of the 5% tax rate on payroll;

·         2026: Tax rate adjusted to 10%;

·         2027: Increase to 15%;

·         2028: Stabilization at 20%.

This new model aims to simplify the tax process, promoting equity among different sectors and contributing to the sustainability of Social Security. By eliminating the choice between taxation on gross revenue or payroll, the system seeks to ensure a more uniform and predictable approach for the involved companies.

 

It is important to note that the agreement has not yet been detailed and published as a binding normative act for companies. In this sense, the coming days and hours should be decisive in concluding this matter. We understand that these fiscal changes may generate uncertainties, and we are here to help your company navigate this new scenario. For more information on how this change might specifically affect your business, rely on our team of experts - https://www.crowe.com/br/crowemacro/en-us/contact-us.