Author: Giovana Ferreira

Brazilian Tax Review – April 2025

Posted on by Giovana Ferreira

Joint Resolution BCB and CVM No. 13/2024

On December 3, 2024, the Central Bank of Brazil and the Brazilian Securities and Exchange Commission (CVM) jointly issued Resolution No. 13/2024, establishing updated rules applicable to investments by non-resident individuals and legal entities in the Brazilian financial and capital markets.

The new regulatory framework aims to foster a more favorable environment for foreign investments by reducing compliance costs and aligning local requirements with international standards. The key changes introduced include:

1. Non-resident Accounts in Brazilian Reais (CNR): Non-resident investors are now allowed to invest in financial assets through CNRs. Legal entities using their own CNRs may be exempt from appointing a local representative and registering with the CVM, except when investing in securities governed by Law No. 6,385/1976.

2. Abolishment of Simultaneous Exchange Transactions and RDE-Portfolio Registration: The obligation to carry out simultaneous exchange transactions or international transfers in reais, as previously required under Resolution CMN No. 4,373, has been eliminated. Likewise, the requirement to register portfolio investments in the RDE-Portfolio system has been revoked.

3. Restrictions on Use of Offshore Accounts for Securities Acquisition: Financial transactions conducted through offshore accounts for the acquisition of securities are expressly prohibited, except for derivatives involving agricultural commodities traded within Brazil, subject to applicable regulations.

4. Expansion of Eligible Assets for Depositary Receipts: The regulation expands the list of underlying assets eligible for Depositary Receipts to include securities issued by securitization companies, investment funds, and other CVM-supervised entities.

5. Simplified Requirements for Individual Non-Residents: Individual investors are exempt from appointing a local representative and registering with the CVM, provided their investments via CNR or other means do not exceed BRL 2 million per intermediary per month.

6. Additional Provisions: Investors undergoing a change in residency status may maintain existing investments under originally agreed terms.

Also, a risk-based approach is adopted for document retention and information requirements, with a ten-year retention period for supporting documentation.

 

Brazil amends Pillar 2 rules

Brazilian Federal Revenue Office has enacted a new Normative Instruction to amend Normative Instruction n. 2.245/2024, which regulates the Pillar 2 rules in Brazil.

In a summary, the new Instruction includes a reference to the need to apply Brazilian rules when foreign entities calculate the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR) in relation to Brazil. It is important to highlight the country only adopted the Qualified Domestic Minimum Top Up Tax (QDMTT) from Pillar 2 rules.

The new regulation also includes a reference to OECD Guidelines on GloBE rules (Commentaries on the Model Rules) as subsidiary sources for interpreting Brazilian rules.

In addition, the normative instruction improves the translation of the Pillar 2 rules, in order to facilitate the interpretation of expressions such as “Constituent Entity” (Pillar 2) and “entity forming part of a multinational group” (CbCR) for the purposes of applying the safe harbors.

The changes made to Normative Instruction 2228/2023 are the result of suggestions made by taxpayers when the rule was still under public consultation.

 

Tax Reform – Approval of Complementary Law 214

The recent enactment of Complementary Law No. 214, dated January 16, 2025, marks a significant step in Brazil’s tax reform. This legislation establishes the Tax on Goods and Services (IBS) and the Social Contribution on Goods and Services (CBS), aiming to simplify and modernize the national tax system. These new taxes will replace PIS, Cofins, ICMS, and ISS.

The main change introduced by the reform is the implementation of a dual Value-Added Tax (VAT) system, consisting of CBS and IBS. This new structure seeks to eliminate tax cascading throughout production chains, applying taxation only to the added value at each stage. Additionally, the law provides for the creation of the Selective Tax (IS), which will be levied on products considered harmful to health and the environment, with the goal of discouraging their consumption.

The implementation of the new tax system will be carried out gradually. In 2026, CBS and IBS will be tested nationwide, with rates of 0.1% and 0.9%, respectively. The full transition to the new system is expected to be completed by 2033.

The Complementary Law also establishes differentiated tax regimes for various sectors. For example, education and healthcare services, medical devices, and food for human consumption will have a 60% reduction in the standard tax rate. Another example is independent professionals, who will benefit from a 30% reduction in the rate.

The expectation is that the tax reform will simplify the current system by unifying taxes and eliminating cascading effects. Additionally, the implementation of differentiated regimes aims to address the specific needs of various sectors.

 

Accelerated Depreciation Benefit for Tankers and Support Vessels – Law No. 15,075/2024

On December 26/2024, Law No. 15,075/2024 was enacted, primarily aimed at allowing the transfer of excess local content between oil and natural gas exploration and production contracts.

Additionally, the law permanently incorporates into federal tax legislation the accelerated depreciation tax benefit, which was previously established under Provisional Measure (PM) No. 1,225/2024.

Provisional Measure No. 1,225/2024 had extended the possibility of applying differentiated accelerated depreciation rates. Initially, this benefit was granted to new machinery, equipment, devices, and instruments classified as fixed assets. The PM expanded the benefit to include new tankers produced in Brazil, classified as fixed assets, and exclusively used for coastal shipping (cabotage) of oil and its derivatives.

The new Law No. 15,075/2024 not only maintains this expansion but also broadens the scope of the tax benefit. Now, maritime support vessels used for logistics support and service provision in offshore fields, facilities, and platforms are also eligible for accelerated depreciation.

 

Energy Transition Acceleration Program – Law No. 15,103/2025

Law No. 15,103/2025 established the Energy Transition Acceleration Program (Paten), aimed at promoting the financing of sustainable development projects. This includes infrastructure works, modernization, and the implementation of energy production parks based on sustainable sources, as well as research and technological innovation with socio-environmental benefits in Brazil.

The law introduced the possibility of tax settlement agreements conditioned on these investments, allowing companies to negotiate debts with the federal government according to their project timelines.

The priority sectors include, among others, the production of sustainable fuels such as biogas, biomethane, and low-carbon hydrogen, as well as the expansion of renewable energy sources like solar, wind, nuclear, and biomass. The program also supports the replacement of polluting energy sources, waste-to-energy projects, the development of energy storage systems, and investments in infrastructure for clean fuels. Additionally, initiatives focused on decarbonizing the transportation sector and manufacturing vehicles powered by sustainable fuels are part of the program’s scope.

The law also created the Sustainable Development Guarantee Fund, known as the Green Fund, managed by BNDES. This fund will act as a guarantee mechanism for financing projects under Paten. Companies will be able to contribute tax credits and government-issued debt securities to the fund, receiving participation quotas that can be used as guarantees for financial transactions.

With regulatory provisions still pending from the Executive, the program is expected to provide greater security for investors and companies interested in sustainable projects.

 

New Betting Rules Has Come into Force

Online betting activities began to be regulated in Brazil in 2023. Since then, the federal government has issued several regulatory norms on bookmakers’ authorization, limitations on advertising and procedures to prevent money laundering. This new regulatory framework came into force on January 1st, 2025.

The most striking thing is that 12% of the Gaming Gross Revenue (GGR) collected by online bookmakers must be passed onto public and private entities, including sports clubs and federations.

So far, it is not clear whether such levies should qualify as tax or not. If so, the rules for calculating and paying these expenses will have to comply with the general rules and principles of tax law.

In addition, the Ministry of Finance’s Department of Betting has not yet fully detailed the form of passing on the resources to some of the beneficiaries. As a result, this generates a great deal of legal uncertainty, which makes it difficult for bookmakers to operate. The betting industry hopes that online betting activities will be better regulated by the end of this year.

 

Supreme Court to Decide whether Foreign Profits Must be Taxed in Brazil

The Supreme Court will decide whether the Double Tax Treaties signed between Brazil and other countries should rule out the corporate Brazilian taxation on profits earned by controlled and affiliate companies abroad.

The central discussion is whether Article 7 of the Tax Treaties that follow the OECD model should prevail over Brazilian domestic rules on world-wide corporate income taxation. If so, profits earned abroad would be exempt from IRPJ and CSLL (corporate income taxes).

Currently, the Superior Court of Justice and the Administrative Council of Tax Appeals still do not have a consolidated position on the subject. With the Supreme Curt’s decision, the issue will be definitively settled.

The trial was already under analysis by the Supreme Court in 2024. However, it suffered two interruptions. Now, the court has scheduled the discussion to resume in the Virtual Plenary between February 7th and 14th, 2025.

This is such a relevant matter that the Federal Government launched a specific settlement program for such tax debts at the end of 2023. At that time, the Attorney General’s Office pointed out the existence of approximately 200 administrative and judicial proceedings on the subject, discussing a total amount of BRL 69 billion. For this reason, this judgment has generated a great deal of interest from Brazilian companies.

 

Brazilian Federal Revenue Service Updates Rules for the Registration of Commodity Transactions

On December 31, 2024, the Brazilian Federal Revenue Service (Receita Federal do Brasil – RFB) issued Normative Instruction RFB No. 2,246/2024, introducing significant amendments to the rules governing the Registration of Commodity Transactions (Registro de Transações com Commodities – RTC).

Initially established by Law No. 14,596/2023 within the framework of the new transfer pricing rules, the RTC was first regulated by Normative Instruction No. 2,161/2023. However, the original wording of that regulation received criticism due to its lack of detail and clarity. In response, the RFB revised the provisions, taking into account feedback obtained through a public consultation process.

Among the most relevant changes, the RTC is now mandatory for all export and import transactions involving commodities that fall under the scope of transfer pricing legislation, and not limited solely to those applying the Comparable Uncontrolled Price (CUP) method.

Furthermore, the deadline for submitting the RTC has been revised. The registration must now be filed by the 10th day of the month following the execution of the contract. For contracts executed prior to 2025, the RTC must be submitted by March 31, 2025.

Finally, the updated regulation introduces penalties for the late filing of the RTC or for the submission of information that does not comply with the prescribed requirements.

 

STJ Recognizes the Non-Remunerative Nature of Stock Option Plans

On September 11, 2024, the Superior Court of Justice (STJ) ruled that stock option plans granted by companies to their executives and other employees are of a commercial, rather than remunerative, nature for the purposes of Personal Income Tax (IRPF) assessment.

The decision, rendered under the system of repetitive appeals, has binding effect and modifies the previous interpretation adopted by the Federal Revenue Service. Until then, the tax authorities had maintained that stock options should be taxed as indirect remuneration, given their connection to the employment relationship, and thus subject to income tax withholding at the time the option was exercised.

The STJ, by majority, held that taxation should only occur upon the sale of the shares, and only when a capital gain is realized by the beneficiary. According to the Court, the granting of a stock option—even when offered at a price below market value—does not constitute immediate income or a patrimonial increase.

As a result of the decision, companies that already have stock option plans in place may restructure them to align with the new legal interpretation. Likewise, those considering the adoption of such plans may now implement them with greater legal certainty, both for the companies and for the beneficiaries involved.

Gaia Silva Gaede strengthens leadership team with new partner

Posted on by Giovana Ferreira

Gaia Silva Gaede Advogados strengthed leadership team with the arrival of a new partner: Anneliese Velasco Burkert Eger (pictured) joins with a strong background in Corporate Law, M&A, commercial contracts, and private debt renegotiation. She came directly from Felsberg Advogados.

With over 20 years of professional experience in Brazil and 5 years abroad, the new partner will also contribute a range of opportunities for the Firm and offer differentiated service to our clients.

Graduated from Robert Schuman University in Strasbourg, France, in 2002, she completed a master’s degree in European Community Law at the École Régionale des Avocats du Grand-Est and specialized in German commercial and corporate law at the Deutschen Anwaltsakademie.
Anneliese has her diploma validated by the OAB and is a member of the Board of the Latin American Business Association, Lateinamerika Verein e.V., Hamburg – a business association aimed at bringing German companies closer to those interested in operating in Latin America.

The new partner reinforces GSGA’s commitment to excellence and innovation, further enhancing the Firm’s ability to serve its clients with technical and strategic depth.

Now, Gaia Silva Gaede Advogados’ partnership includes 55 partners distributed across units in São Paulo, Curitiba, Rio de Janeiro, Belo Horizonte, Brasília, and Madrid.

Are Individual New Residents’ Regimes Tax Erosive or Base Shifting?

Posted on by Giovana Ferreira

Economic literature is unanimous in stating that several factors influence the flow of direct investments and immigration.1 These include tax policies, infrastructure, local markets, labor opportunities, and, mainly, the quality of life.

In a moment that the United States, the largest economy in the world, is supposed to implement a Copernican twist toward an internal tax policy focused on its own demands, why should other countries dismiss the possibility of implementing their own tax policies through the adoption of special tax regimes such as those to attract new residents?

The legal design of new residents’ tax regimes should focus on three pillars: constitutionalism, tax policy, and global tax avoidance rules. Those regimes encompass programs employed by countries to attract new taxpayers. Over the last few years, citizens of different nationalities have
been migrating, driven by distinct factors that include new residents’ tax regimes. This generally involves the grant of tax exemptions for both active and passive foreign income. The oldest and best-known program of this kind is the English non-dom regime, which is now semi-extinct.

It was based on the equation of new residents’ foreign income taxation as nonresidents.

Evidently, this kind of regime raises theoretical and practical questions about constitutional
power limitations, tax competition, and fairness. Although this topic may not seem novel in
terms of international taxation (for example, tie breaker rules in article 2 of the OECD model income tax treaty or exit tax rules), double taxation treaties were not designed to address this issue comprehensively. They are ill-equipped to manage this emerging global diaspora.

Post COVID-19 dynamics have amplified this paradox regarding new tax regimes for foreigners: While countries promote residency visas with new tax regimes, they simultaneously enforce stricter global antiavoidance rules, such as controlled foreign corporation legislation for individuals and exit tax mechanisms.

This scenario creates a new form of tax competition among countries. On the one hand,
some countries aim to attract individuals by exempting foreign income for new residents; on the other hand, large and developed economies strive to amplify their revenues, taxing nondistributed profits or gains from individuals, as well introducing new taxes on gross income and property. The question is whether there is a right or wrong approach from international tax law. The compatibility of these regimes with tax principles should be established case by case, through the evaluation of each country’s fiscal policies and not through a global approach made by international institutions.

 

National Tax Policies and Specific Tax Regimes

The relationship between national economic goals and new residents’ tax regimes is evident. No country will establish a special tax regime without a macroeconomic goal. Consider two examples: golden visa programs (for example, Greece) and programs designed to attract digital nomads and highly qualified professionals (for example, Spain). The first seeks to attract new taxpayers through foreign investments in the most attractive sector of the Greek economy, the real estate industry.

The second aims to attract new individual taxpayers to expand its tax base and social security contribution revenues.

The latter addresses Spain’s public pension deficit, one of the country’s main macroeconomic problems.
For this reason, all new tax residents must contribute to Spain’s social security system. Another example stems from two intersecting tax policy measures. Following Brazil’s 2013 tax amnesty act, many Brazilians migrated to Portugal, attracted by the nonhabitual resident (NHR) regime.

However, this kind of regime often raises conflicts with international anti-tax avoidance measures.

For example, there are tensions between Portugal’s NHR regime and local and European antiavoidance rules such as CFC legislation for individuals and exit tax mechanisms. Whereas the NHR regime is based on a single law, Portugal’s CFC framework is very complex. It encompasses jurisdictional, transactional, and conceptual approaches, adding significant complexity and leading to legal disputes arising from antinomies, confronting criteria such as lex specialis versus lex generalis and international versus national law.

Regional Conflicts and Global Dynamics

The overlap between national and international legislation regarding individual tax regimes is even more problematic when it involves tax residency and so-called passive foreign investment companies.

It is one of the most sensitive issues when applied to new residents’ regimes because of the fact that it may confront different sets of antiavoidance rules. For instance, since 2021, some EU countries harmonized transparency regimes for individuals while implementing corporate-focused CFC directives. In attempting to curb the use of holding companies for individuals, the EU inadvertently created its own set of favorable regimes for personal foreign investment companies previously existent in some EU state members.

It has created new windows for disputes in the EU’s Court of Justice, through the legal conflicts that stem from the inability to enforce CFC rules when they conflict with EU foundational principles of free movement of capital and persons. Besides, the net of bilateral tax treaties is also more of a hindrance than a help.

Conventional rules either are inapplicable (for example, the incompatibility of CFC rules with treaties) or place foreign investments in discriminatory positions, challenging article 24 of the OECD model convention. This is evident in treaties with dividend exemption clauses, especially given that some countries proficiently use tax and fiscal incentives as a way of bringing in foreign direct investment.

 

A Case-by-Case Perspective

Although new resident regimes aspire to legitimacy, they face pushbacks from hard and soft antiavoidance rules.  In turn, there is a battle between principles of fairness and constitutional supremacy to implement tax incentives. In fact, there are other relevant elements at play when someone thinks about moving to another country.

Many of the jurisdictions that offer new residents’ regimes can provide a good quality and low cost of living, pleasant weather, good infrastructure, and a convenient geographical location. Therefore, this preexisting ecosystem can be a pillar to implement tax-base-shifting policies, which are in general a non-tax erosion measure.

In this context a new residents’ tax regime can be a wise choice for a country to attract skilled professionals and new contributors to their social security system.

New residents’ regimes can create tax loopholes, avoidance, and inequality, but this can be controlled by a dynamic review of the rules, like exit tax mechanisms (for example, the oneyear rule for capital gains taxation in the Italian regime). From another angle, the assumption that new residents’ tax regimes are always addressed to ultrawealthy individuals is incorrect.

For example, many of those who adhered to Portugal’s NHR regime were middle-income individuals seeking to reside in a quiet place with a low cost of living. In summary there isn’t a one-size-fits-all
answer to whether new residents’ tax regimes are good or bad.

From an individual standpoint, the right to freedom includes legitimate aspirations to change residence, considering the tax burden. In this vein, we all know that international tax law should respect constitutional national rules.

We’re living in a moment in which the speech from international institutions of the necessity of tax system’s standardization in the name of fairness is now being questioned. Countries have different characteristics and opportunities in terms of howmto increase the number of taxpayers, new contributors to support their social security systems, and so on. Conclusively, international tax law,
constitutional tax powers of countries, individuals’ freedom of movement, and fairness should be balanced for each situation regarding a new residents’ tax regime.

Text originally published on Tax Notes.

Impacts of Pillar 2 on Sudam/Sudene Tax Incentives

Posted on by Giovana Ferreira

Moving forward with the process of adapting Brazilian legislation to the Global Anti-Base Erosion Rules, the government published Provisional Measure No. 1.262/2024, converted into Law No. 15.079 in December 2024, which partially adopted the OECD Pillar 2 rules.

The new rules aim to establish a minimum effective tax rate of 15% for large multinational groups operating in Brazil. The global minimum tax is known as a Qualified Domestic Minimum Top-Up Tax (QDMTT) or simply Top-Up Tax, which, as the name suggests, is a complementary tax. In Brazil, it will be paid as an additional to the CSLL (Social Contribution on Net Profits).

If the multinational group in Brazil assess an effective rate of the Corporate Taxes lower than 15%, considering all the Brazilian entities, an additional CSLL will be levied, corresponding to the OECD Top-Up Tax, until the percentage of 15% is reached.

Such rule applies to the multinational groups that have global annual turnover equal to or greater than € 750 million in at least two of the four fiscal years immediately preceding the one analyzed.

The point is that in Brazil the main factors that reduce the effective tax rate are tax incentives These include regional tax incentives in the SUDAM and SUDENE geographic areas, which will be the focus of this article.

Currently, legal entities with projects for installation, expansion, modernization or diversification in priority sectors of the economy for regional development in the SUDAM and SUDENE geographic areas are entitled to a 75% reduction in IRPJ (Legal Entities’ Corporate Tax) calculated on the basis of the operating profits (“Lucro da Exploração” in Portuguese).

The operating profits are based on the net profits adjusted by excluding amounts that are not directly related to the legal entity’s core business (for example, financial income that exceeds financial expenses and income and losses from equity holdings). This is because the tax incentive aims to relieve precisely the profits resulting from the legal entity’s core business, which promotes the development of the geographic areas of SUDAM and SUDENE [1].

The purpose of the Top-Up Tax is to tax excess profits, which correspond to the so-called GLoBE profit (net profit after adjustments provided for in the Law). On top of this amount, a percentage of the book value of investments in tangible assets and payroll expenses (“substance-based income exclusion”) will be excluded from net income.

The substance-based income exclusion allows, in theory, for revenues from the legal entity’s core business not to be affected by the GLoBE profit. However, the percentages applied to tangible assets and payroll expenses in Annexes VI and VII of Law No. 15,079/2024 represent only a partial exclusion, so that revenues from the legal entity’s core business will too be subject to the Top-Up Tax.

It should be noted, therefore, that there are two rules that were enacted for different purposes: (i) Pillar 2, which aims to tax surplus profits, partially excluding investments focused on the companies’ main activity; and (ii) the SUDAM and SUDENE tax incentive, which aims to reduce the income tax calculated on the profit arising from this main activity.

Let’s see how these rules interrelate: the multinational group that sets up its company in the SUDAM and SUDENE areas needs to prove its investments in geographic areas covered by the incentives. This is done by presenting, among other documents, invoices for the purchase of equipment/machinery needed for the production process (tangible assets).

According to current legislation, the profits derived from the companies located in SUDAM and SUDENE areas will benefit from a reduction in the effective rate of IRPJ. The reduction can be up to 75% of the IRPJ, resulting in an effective IRPJ rate of 7.5% on the basis for calculating the operating profit. The benefit does not apply to the CSLL.

On the other hand, the Top-Up Tax calculation base, corresponding to an additional CSLL, will be the GLoBE profit, which is calculated differently from the operating profits of SUDAM and SUDENE. If the calculation of GloBE profit results in an effective tax rate lower than 15%, the additional CSLL will be levied as a Top-Up Tax in order to reach this 15% minimum rate.

In practice, the government will reduce the IRPJ on one side and tax that same profit on the other.

This problem is not exclusive to the Brazilian legislation. There is a global discussion about the consequences of developing countries adopting Pillar 2, since most of these countries base their tax policies on granting incentives in order to attract foreign investments [2].

In this context, the OECD proposes that countries grant tax benefits through Qualified Refundable Tax Credits. This mechanism legitimizes refundable tax credits paid in cash or offset against other taxes not covered by Pillar 2.

In this model, Refundable Financial Credits are treated as income and do not reduce the basis for calculating income tax and the effective rate of corporate taxes. This is because, by including them in the denominator and not in the numerator of effective rate’s calculation formula, the effective tax rate tends to be higher, thus reducing the additional CSLL to reach the 15% minimum rate.

Specifically with regard to the SUDAM and SUDENE tax benefits, the law stipulates that the government may, from 2026, convert them into a Qualified Refundable Tax Credit. The intention is to bring them into line with the substance requirements adopted in the calculation of the GLoBE profit exclusion.

This change demands attention from the academic community and taxpayers. In recent years, under the pretext of “updating legislation”, the government has repeatedly reduced the financial benefit of tax incentives, including investment grants and interest on equity.

In order to ensure that changes to the SUDAM and SUDENE tax incentive mechanism to adapt to Pillar 2 do not damage taxpayers, the following approach is suggested: the value of the operating profit should be granted as a government credit (which is not taxed) that can be offset against the “CBS” (Contribution on Goods and Services) payable from 2027, or reimbursed in cash, adjusted by the SELIC rate.

This approach reconciles the objectives of the SUDAM and SUDENE tax incentives and the OECD’s own Pillar 2 guidelines with tax incentives for regional development. Furthermore, this approach already has precedents in our legal system, such as the system like the tax credit for green hydrogen established by Law 14.990/2024.

For all these reasons, if the conversion system is implemented in the way described, or in another way that achieves the same result, it can be said that the Pillar 2 rules and the SUDAM and SUDENE tax incentives are not incompatible.

Otherwise, antinomies could be created at the outset of the application of the Pillar 2 rules in Brazil, increasing litigation and, consequently, breaking down the desirable equity between companies located in the country.

[1] SUDAM and SUDENE geographic areas cover the states of North and Northeast of Brazil, which are historically less economically developed.

[2] Kostic, Svetislav V., Pillar 2 and alternatives for attracting (as well as keeping) foreign investments. Disponível em https://kluwertaxblog.com/2024/08/14/pillar-2-and-alternatives-for-attracting-as-well-as-keeping-foreign-investments/

 

Text originally published on JOTA.

Regulated carbon market established in Brazil

Posted on by Giovana Ferreira

On December 12, 2024, Federal Law No. 15,042/2024 was published, instituting the Brazilian Greenhouse Gas Emissions Trading System (“SBCE”), a significant milestone in the regulation of the country’s carbon market.

The SBCE will apply to activities, sources, and facilities located within Brazilian territory that emit or have the potential to emit greenhouse gases (“GHG”). Operators responsible for installations and sources emitting over 10,000 tCO2eq/year must submit a monitoring plan and a GHG emissions and removals report to the SBCE managing body. Additionally, operators of sources emitting over 25,000 tCO2eq/year must, beyond the obligations aforementioned, offset their emissions, within the compliance period to be determined by the managing body, and submit a periodic reconciliation report.

Primary agricultural production, as well as goods, improvements, and infrastructure directly associated with their rural properties, are not subject to the rules of this system.

In sum, the SBCE adopts an economic approach known as “cap and trade”. The SBCE managing body will allocate Brazilian Emission Allowances (“CBEs”) to regulated operators, either free of charge or for a fee, setting a maximum emissions limit for the sector (cap). Operators that reduce their emissions below the distributed CBEs can trade the surplus, while those emitting GHGs above their allocated CBEs must offset their emissions either by acquiring CBEs on the market or through Verified Emission Reduction or Removal Certificates (“CRVEs”) (trade).

Both assets – CBE and CRVE – are fungible, tradable units, representing effective reductions or removal of GHGs of 1 tCO2eq. The difference lies in their origin: CBEs will be granted by the managing body, while CRVEs represent credits generated from projects duly registered before SBCE and following its methodologies (to be regulated).

When traded on the financial and capital markets, these assets will be classified as securities and subject to the Brazilian Securities and Exchange Commission Law (Federal Law No. 6,385/1976).

In this regard, the CVM has just published CVM Resolution no. 223, of December 16, 2024, which approves OCPC Technical Guidance 10 – Carbon Credits, Emission Permissions (allowances) and Decarbonization Credits (CBIO), with the basic requirements for recognition, measurement and disclosure of carbon credits, emission permits and decarbonization credits (CBIOs), as well as provision on associated liabilities, whether arising from legal or non-formalized obligations, as defined in the CPC 25 – Provisions, Contingent Liabilities and Contingent Assets.

For each compliance period, the National Allocation Plan will define, among other aspects, the maximum emissions cap, the number of CBEs to be allocated to operators, and the allocation method (free or for a fee).

The traceability of these assets will be ensured through the SBCE Central Registry, a digital platform that will (i) receive and consolidate information on GHG emissions and removals; (ii) ensure precise accounting of the granting, acquisition, holding, transfer, and cancellation of assets; and (iii) track national transactions involving these assets and internationally transferred mitigation outcomes.

Revenue generated from trading SBCE assets will be taxed under the Income Tax rules applicable to (i) the taxpayer’s regime, in the case of developers who initially issued these assets; (ii) net gains from transactions on stock exchanges, commodity and future markets, and organized over-the-counter markets; and (iii) capital gains in other situations.

These provisions also apply to the Social Contribution on Net Income (“CSLL”) for legal entities under the actual, presumed, or arbitrated profit regime. Revenues from the sale of assets are not subject to the Pis/Pasep or the Cofins.

Lastly, the SBCE will be implemented in five phases as follows:

 

Phase I: a 12-month period, extendable for another 12 months, for regulatory development;

Phase II: a 1-year period for operationalizing emission reporting instruments;

Phase III: a 2-year period during which operators are only required to submit a monitoring plan and an emissions and removals report;

Phase IV: implementation of the first National Allocation Plan, with free allocation of CBEs, and the launch of the SBCE asset market; and

Phase V: full implementation of the SBCE upon the conclusion of the first National Allocation Plan.

Click here to access the special teaser produced for this informative.

For further information, please contact the professionals in the Corporate Sustainability and Tax departments at GSGA.

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