At the end of 2021, Law no. 14.286/21, which amends the rules of the Brazilian foreign exchange market, was enacted. The new law will come into effect on December 30, 2022, and will bring, among the key changes, news regarding operations of remittance of royalties abroad.
One of the innovations brought by such law consists of ending the prohibition of remittance of royalties between Brazilian subsidiaries and branches and the parent companies abroad in an amount higher than the tax deductibility of the Legal Entity Income Tax.
The Brazilian tax legislation (art. 14, sole paragraph, of Law 4.131/62) currently prohibits the remittance of royalties between foreign branches/subsidiaries and their parent companies abroad in an amount higher than the deductibility limit, which varies between 1% and 5% of the net income.
However, as of December 30, 2022, such restriction will no longer be applicable, considering the revocation of art. 14, sole paragraph, of Law no. 4.131/62, by Law no. 14.286/21.
The new legal text also extinguished the requirement to register contracts with the Central Bank. Thus, the tax-deductibility of remittances by way of payment for royalties will no longer be conditional on such registration, allowing such payments to be made regardless of the execution of foreign exchange contracts.
In addition to providing more efficiency to the foreign trade and globalization of companies, the extinction of foreign exchange and tax restrictions currently applicable to the remittance of royalties abroad represents a step forward in the process of debureaucratization, facilitating the transfer of technology to Brazil.
Drummond Advisors’ Tax Planning team has qualified professionals who can analyze the tax impacts of the rules in question.
Contact us via email: info@drummondadvisors.com
Written by Adriana Lemos, Tax Planning Team Leader at Drummond Advisors
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