Provisional Decree revokes payroll tax relief, limits tax offsets, and repeals benefits for events industry

With the goal of aiding in the recovery of revenue lost in recent years, the Brazilian Federal Government issued Provisional Presidential Decree (MP) No. 1,202/2023 on December 29.

The legal act – which is subject to ratification by the National Congress – introduces three measures aimed at rebalancing the country’s economy, and its impacts are bound to be felt by companies across various segments starting in 2024.

Check out the key points below:

Revocation of payroll tax reliefs

The decree provides for a gradual reinstatement of payroll taxation for companies. This directly impacts sectors with high employment rates that have enjoyed the benefit since 2012, which had been recently extended by Law No. 14,784/2023.

With the new provisions in force, companies that would have otherwise benefited from the tax relief will once again be required to pay social security contributions on their employees' payrolls. At a first moment, reduced rates will be applied, but they will gradually increase over the following three years until the full 20% rate is reinstated by 2028.

The rates will be tiered based on the company's sector, considering its business activity, as outlined in Annex I or II of the Decree. *

Year	Businesses under Annex I	Businesses under Annex II
2024	10%	15%
2025	12	16.25%
2026	15	17.5%
2027	17.5%	18.75%

* Annex I primarily encompasses services related to transportation, broadcasting, software development, and IT. Annex II, on the other hand, covers a broad range of business activities, including civil engineering, assembly of industrial facilities, electricity and transmission, and the manufacturing of footwear, clothing, and textiles.

It should be noted that the new provisions will take effect from April 2024. Thus, until then, all business activities above will remain exempt from the payroll taxes.

Tax credit offsets

The rules also impose restrictions on companies that are awarded tax credits exceeding BRL 10 million against the Federal Revenue Service on account of court decisions.

It is worth noting that this topic has already been further regulated by the Brazilian Ministry of Finance through MF Ordinance No. 14/2024, issued in an extra edition of the Official Gazette on January 5.

Previously, companies could fully offset 100% of these credits at once, a situation that often led to complete tax exemptions. However, the recent amendment has introduced monthly limits for credit offsetting, ranging from 12 to 60 months, depending on the total value of the claims, as outlined in the table below.

Total credits	Minimum period for tax offsetting
BRL 10,000,000.00 to BRL 99,999,999.99	12 months
BRL 100,000,000.00 to BRL 199,999,999.99	20 months
BRL 200,000,000.00 to BRL 299,999,999.99	30 months
BRL 300,000,000.00 to BRL 399,999,999.99	40 months
BRL 400,000,000.00 to BRL 499,999,999.99	50 months
BRL 500,000,000.00 or more	60 months

End of benefits for the events industry

Another important provision is the revocation of tax benefits that had been granted by the Emergency Program for the Resumption of the Events Sector (Perse).

Launched in 2021 with the aim of compensating the businesses in the industry for the measures put in place in response to the Covid-19 pandemic, the Perse provided for the reduction of social contributions and corporate income tax rates to zero for certain activities.

The decree, however, gradually reinstates these taxes for the affected businesses, according to the schedule below.

Taxes	Date of reinstatement
Social Contributions (PIS/PASEP, COFINS, CSLL)	April 1, 2024
Corporate Income Tax (IRPJ)	January 1, 2025

Entry into force

The sections pertaining to the limitation on offsetting credits are currently enforceable. As for the other provisions set out in the Decree, they will become effective on April 1, 2024.

It should be noted that, being a Provisional Presidential Decree (“Medida Provisória”), its provisions must be signed into law by the National Congress within 120 days of the act’s issuance date; otherwise, they will cease to be in force.

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