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19 December 2025

Brazil's Congress approves bill reducing federal incentives and increasing taxation of certain industries and instruments

  • On 17 December 2025, Brazil's Congress approved Complementary Bill No. 128/2025, which mandates reductions in federal tax incentives and increases the withholding tax rate on Interest on Net Equity (INE) to 17.5%, effective from 1 January 2026.
  • The bill introduces a 10% cut in federal tax incentives, phasing in between 2025 and 2026, and new benefits will only be granted if offset by equivalent compensatory measures, affecting companies reliant on special regimes.
  • Presumed profit margins will increase by 10 percentage points, making the Presumed Profit regime less attractive for businesses with lower actual margins, as service companies will now have a presumed margin of 42% instead of 32%.
  • The legislation also raises taxation for fintechs and the betting industry, with corporate income tax for fintechs increasing to 40% or 45%, and a gradual increase in the tax rate on fixed-odds bets from 12% to 15% over three years, affecting financial strategies for these sectors.
 

Executive summary

On 17 December 2025, Congress approved Complementary Bill No. 128/2025, introducing mandatory reductions in federal tax incentives, increasing the withholding tax rate on Interest on Net Equity (INE or INE/JCP) to 17.5% and increasing presumed profit margins under the Presumed Profit regime. The bill also increases taxation for fintechs and the betting industry. Pending presidential sanction of the bill, most provisions will apply from 2026.

Detailed discussion

The approved legislation aims to strengthen fiscal balance by implementing the following measures.

Reduction of federal incentives: A 10% cut in federal tax incentives will be phased in between 2025 and 2026. New or extended benefits will only be allowed if offset by equivalent compensatory measures. Structural regimes such as constitutional benefits, social programs, simplified regimes and strategic regional incentives remain protected.

Increase in INE taxation: The withholding tax rate on INE paid or credited to nonresidents will increase from 15% to 17.5%, affecting shareholder remuneration strategies and capital structures. INE is a hybrid instrument — although paid out of profits or retained earnings, it may be deductible for corporate income tax purposes.

Presumed Profit regime adjustments: Presumed profit margins will increase by 10 percentage points. The Presumed Profit method applies to Brazilian companies with annual revenue of less than 78 million Brazilian Real (BRL78m) (approx. US$14.7m). Under this regime, expenses are disregarded, and a presumed margin is applied to gross revenue to calculate taxable income. For example, service companies will now be presumed to have a 42% margin instead of 32%, reducing the attractiveness of the regime and making it suitable mainly for businesses with actual high margins.

Gaming industry tax increase: The tax rate on fixed-odds bets will gradually increase from 12% to 15% of Gross Gaming Revenue, with a one-percentage-point increase per year (13% in 2026, 14% in 2027, and 15% in 2028). Despite the increase, the new rate remains below the government's initial proposal of 18%.

Fintech tax increase: Corporate income taxation of fintechs will increase from the current 34% to 40% or 45%, depending on their regulatory characterization. This aligns fintech taxation with that imposed on other financial institutions.

Safeguarded incentives: Certain incentives will remain protected, such as corporate tax benefits focused on Brazil's North and Northeast regions. Further regulations are expected to clarify which incentives will not be impacted by the new legislation.

Effective Date

Most provisions will apply from 1 January 2026.

Who is most affected?

Entities likely to be most affected include:

  • Companies relying on special regimes or sector-specific incentives
  • Groups with recurring INE/JCP strategies
  • Businesses under the Presumed Profit regime
  • Gaming and betting operators
  • Fintechs
  • Entities with tax planning based on exemptions or credits
* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

EY Assessoria Empresarial Ltda, São Paulo

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (UK), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2025-2572

 
 

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