Provisional Measure No. 1,303/2025 (the PM), published on 11 June 2025, introduces significant changes to Brazil's taxation framework, along with various amendments to tax laws. This Alert highlights key aspects of the PM pertaining to financial and capital markets. Most of these changes should take effect from 1 January 2026.

(For high-level background, see EY Global Tax Alert, Brazilian Government announces substantial tax changes affecting Interest on Net Equity, financial investments, betting operations and IOF regulations, dated 12 June 2025.)

Key highlights

The key changes can be summarized as follows:

¹ These acronyms refer to various securities: LCA refers to Agribusiness Credit Letters; LCI refers to Real Estate Credit Letters; CRI is a Real Estate Receivables Certificate; CRA is an Agribusiness Receivables Certificate; and LCD is a Development Credit Letter.

² FIA refers to Stock Investment Fund; FIP refers to Private Equity Investment Fund; and FIDC refers to Credit Rights Investment Funds.

³ FII refers to Real Estate Investment Fund and FIAGRO refers to Agribusiness Investment Fund.

⁴ In this context, a "tax-favored jurisdiction" has a tax regime that imposes no or low tax on income.

Income from financial investments — general taxation rule

The definition of income from financial investments includes any earnings derived from capital invested in financial assets within Brazil, such as interest, premiums, income from investment fund shares, and net gains from stock exchanges or organized markets. However, dividends and interest and net equity are not included in that definition.

Effective 1 January 2026, a single withholding income tax (IRRF) rate of 17.5% has been established for income from financial investments in Brazil, effectively eliminating the previous myriad of withholding tax rates.

Impact on Brazilian individuals:

The 17.5% IRRF will be withheld by the legal entity responsible for the payment of the income from financial investments (i.e., payment source/agent) or the legal entity that, in spite of not being the original payment source/agent, executes a payment to a beneficiary.

Income from financial investments will be reported by resident individuals in their Annual Adjustment Declaration (DAA) return, allowing for the offset of the IRRF as a prepayment. If the IRRF exceeds the calculated income tax (IRPF) in the DAA, taxpayers will receive a refund for the excess amount.

Generally, losses incurred through 31 December 2025 will continue to be utilized (i.e., offset) under the current rules. Starting 1 January 2026, losses from financial investments can be offset against income from other financial investments in Brazil, provided they are declared in the DAA return. Any unutilized losses can be carried forward for up to five subsequent assessment periods.

Impact on Brazilian corporations:

The IRRF will continue to be treated as an advance payment of the corporate income tax that Brazilian corporations owe for the assessment period. Note that banks, broker-dealers, insurance companies and other financial institutions will continue to be exempt from the IRRF.

Net gains on stock exchanges or organized over-the-counter markets

This refers to profits from trading stocks, subscription bonuses, subscription receipts, stock deposit certificates and other financial instruments in stock and organized markets. Taxpayers may deduct costs and expenses incurred by intermediaries, as well as losses realized during the current period or in the five preceding periods.

Day trading will no longer be treated separately from other spot market transactions. Losses from day trading can now be fully deducted, rather than being limited to net gains in the same period.

The taxation of net gains will be structured as follows.

For Brazilian individuals:

• Net gains will be taxed at the general rate of 17.5%, with tax calculated quarterly.
• There will be an exemption from IRPF for disposals made each quarter amounting to 60,000 Brazilian Real (BRL60k) or less.
• Losses may be offset in the current assessment period or in up to five subsequent periods.
• From 1 January 2026, losses that cannot be offset against net gains may offset other income from financial investments in Brazil, as reported in the DAA return.

For Brazilian corporations:

• Net gains will be included in the corporate income tax calculation base.
• In the case of real profit, losses can be deducted if they meet the general deductibility criteria set by tax law.

Virtual assets

Any income, including net gains, obtained from transactions involving virtual assets (including cryptocurrency) will be subject to IRRF at 17.5% rate.

Impact for Brazilian individuals:

• The income tax assessed and paid quarterly on net gains from virtual asset transactions will be final, and losses cannot be offset against gains from other transactions.
• If a virtual asset represents a different type of financial investment, the income will be taxed according to the applicable rules for that underlying investment.
• The capital gains exemption on sales of low-value assets (less than BRL35k) has been revoked for transactions involving virtual assets both domestically and internationally (the rule for net gains remains unchanged).

Impact for Brazilian corporations:

• Net gains from virtual assets are to be included in the calculation base for advance payment of the corporate income tax (IRPJ) and the Social Contribution on Net Profits (CSLL).
• The deduction of losses will not be permitted.

Investment Funds

Income from investments in Investment Funds in general, regardless of whether they are subject to periodic taxation (i.e., "come-cotas," the semi-annual advance collection of income tax on investment fund earnings), will be taxed at a rate of 17.5%. Current tax exemptions applied to certain types of investment funds will remain unchanged.

Impact for Brazilian individuals:

• The IRRF withheld on gains from quota holders of investment funds will now be treated as an advance payment of the IRPF due in the DAA.
• For FII and FIAGRO, the IRRF tax rate has been reduced from 20% to 17.5% for cases not subject to exemption. A 5% tax rate (previously exempted) applies to individuals investing on the stock exchange or over-the-counter market, provided the following conditions are met: (i) a minimum of 100 quota holders investing in the fund; (ii) the individual investor holds less than 10% ownership of the total quotas of the fund; and (iii) combined ownership of the investor with related parties is less than 30% of the total quotas of the fund.

Impact for Brazilian corporations:

• Changes in the net asset value of investment fund shares will be taxed on an accrual basis (except for corporations under presumed profit, which will use a cash basis).
• The tracking of asset variations in a sub-account will be necessary for the deferral of taxation in specific cases

Taxation of incentivized bonds

A 5% IRRF will apply to the following income from incentivized fixed-income securities, which are currently exempt:

• Real Estate Credit Letters (LCI), Real Estate Receivables Certificate (CRI), Mortgage Notes
• Agribusiness Credit Letters (LCA), Agribusiness Receivables Certificate (CRA), Agribusiness Deposit Certificate (CDA), Agribusiness Warrant (WA), Agribusiness Credit Rights Certificate (CDCA)
• Rural Product Note (CPR) with financial settlement
• Covered Mortgage Bond (LIG), Development Credit Letter (LCD)
• Infrastructure bonds (Law No. 12,431/2011, e.g., incentivized debentures in government-prioritized infrastructure projects)
• Investments in Incentivized Infrastructure Investment Fund (FI-Infra), Infrastructure Equity Investment Fund (FIP-IE), Equity Investment Fund in Research, Development, and Innovation (FIP-PD&I), Real Estate Investment Fund (FII), Agribusiness Investment Fund (FIAGRO)

Transition rule: Securities and financial instruments, including investment fund shares, issued and fully paid up by 31 December 2025 will not be affected by the new rule. They will retain the previous treatment (exemption), even if sold on the secondary market after that date. Any renegotiation that changes the maturity of securities issued and fully paid by 31 December 2025 will result in a 5% tax on future income.

Impact for Brazilian individuals: Gains and losses from these assets cannot be used for offsetting in the DAA.

Impact for Brazilian corporations: The IRRF will continue to be treated as an advance payment of the corporate income tax (IRPJ) due for the assessment period.

Nonresident investors' net gains and income on financial investments

As a general rule, nonresident investors are subject to the same IRRF rates and rules applicable to the Brazilian resident individuals. That means that income deriving from financial investments by investors that are not resident in a tax-favored jurisdiction should be subject to the IRRF rate of 17.5%. The withholding tax applied for nonresidents will be final, and no offsetting of gains and losses with other investments will be allowed. As such, the applicable income tax withholding rate on interest payments arising from corporate bonds held by non-tax haven nonresident investors would increase from 15% under current law to 17.5% under the proposed rules. However, the exemption applicable to interest payments arising from Brazilian Government bonds remains available under the proposed rules for investors that are not resident in a tax-favored jurisdiction.

On the other hand, investors resident in a tax-favored jurisdiction, as denoted on the list that the Brazilian Federal Revenue Service provides through Normative Instruction no. 1,037/2010, will instead be subject to a higher 25% IRRF rate. As such, the applicable income tax withholding rate on interest payments arising from either Brazilian Government bonds or corporate bonds held by nonresident investors who reside in a tax-favored jurisdiction would increase from 15% - 22.5% under current law to 25% under the proposed rules. Similarly, the applicable income tax withholding rate on income and gains earned from shares of Brazilian private equity investment funds (so-called FIPs) held by nonresident investors resident in tax-favored jurisdictions would increase from 15% under current law to 25%.

Specifically with respect to net gains resulting from trading stocks, subscription bonuses, subscription receipts, stock deposit certificates and other financial instruments on a Brazilian stock exchange or an organized over-the-counter market, foreign investors not residing in tax-favored jurisdictions will be exempt from IRRF. In other words, the exemption remains available under the proposed rules for investors that are not resident in a tax-favored jurisdiction.

Effective Date

If enacted into law, the new rules will take effect on 1 January 2026.

Note that a Provisional Measure is a provisionary law issued by the executive branch of the Brazilian Government that has the authority of law until it is acted upon (amended or converted) by the Congress within a prescribed 60-day period (extendable by one additional 60-day period). If Congress does not act within this period, then the measure expires.