Complementary Law No 224/2025: Restrictions on Tax Incentives and Tax Burden Increase

On December 26, 2025, Complementary Law No. 224 (“LC 224”) was enacted, originating from Complementary Law Bill No. 128/2025. Its primary objective is to establish criteria for the granting and reduction of federal tax incentives, directly impacting companies under the Presumed Profit regime and other taxpayers utilizing tax benefits.

Furthermore, LC 224 increased the Withholding Income Tax (“WHT”) rate on payments of Interest on Net Equity (“JCP”), as well as raised the tax burden on specific sectors, such as payment institutions and the gaming and betting sector.

Please find below the details of the main changes introduced by LC 224.

1. Reduction of Tax Benefits

LC 224 establishes a mechanism for the control and reduction of federal tax incentives, imposing rules on the utilization of benefits related to IRPJ, CSLL, PIS/Pasep, Cofins, IPI, and Import Tax, depending on the type of tax incentive:

(i)        Exemption and zero rate: application of a rate corresponding to 10% of the rate under the standard taxation system

(ii)      Rate reduction: application of a rate corresponding to the sum of 90% of the reduced rate and 10% of the rate under the standard taxation system

(iii)     Calculation basis reduction: application of 90% of the basis reduction provided for in the specific legislation of the benefit

(iv)     Financial or tax credit (“presumed credit”): use of the credit is limited to 90% of the original value; any unused amount is forfeited

(v)      Reduction of tax due: application of 90% of the tax reduction provided for in the specific legislation of the benefit

(vi)     Special or optional privileged regimes where taxes are levied as a percentage of gross revenue: a 10% increase in the gross revenue percentage and

(vii)   Taxation regimes where the calculation basis is presumed: a 10% increase in the presumption percentages

Regarding the Presumed Profit regime, LC 224 established a specific rule: there will be a 10% increase in the profit presumption coefficients defined in Article 15 of Law No. 9,249/1995, applicable only to taxpayers whose annual gross revenue exceeds BRL 5,000,000.00, levied exclusively on the portion of revenue exceeding this limit.

These incentive reductions do not apply to constitutional immunities, tax benefits for the Manaus Free Trade Zone and Free Trade Areas, the Simples Nacional regime, nor to benefits granted under social programs such as Prouni and Minha Casa, Minha Vida.

2. Increase in WHT levied on JCP from 15% to 17.5%

LC 224 amended Article 9, Paragraph 2, of Law No. 9,249/1995, raising the WHT rate applicable to JCP from 15% to 17.5%, which is levied on the date of payment or credit to the beneficiary.

3. Increase in CSLL payable by Financial Sector companies

Article 7 of LC 224 amended the wording of Article 3 of Law No. 7,689/1988, establishing new CSLL rates:

• Payment institutions (Law No. 12,865/2013), organized over-the-counter (OTC) market administrators, stock, commodities, and futures exchanges, clearing and settlement entities, and other financial institutions: 12% rate until Dec 31, 2027, fixed at 15% as of 2028
• Credit, financing, and investment companies: 17.5% rate until December 31, 2027, increased to 20% as of January 1, 2028

4. Changes to the operation of lotteries and fixed-odds betting

LC 224 amends the contribution on Gross Gaming Revenue (“GGR”) established in Art. 30 of Law No. 13,756/2018, reinforcing the percentage allocated to funding social security, whereby the 12% rate will undergo a progressive increase as follows:

• 13% for the year 2026
• 14% for 2027 
• 15% as of 2028

In addition, LC 224 introduces a joint tax liability for financial and payment institutions that, following formal notification from the competent federal authority, allow transactions with unauthorized operators, as well as for media outlets that run advertising for these irregular agents.

5. Effectiveness date

The temporal effectiveness of the changes complies with the constitutional principle of tax anteriority, as provided for in Article 14 of LC 224 itself.

Changes impacting Income Tax, such as the new rules for Presumed Profit and the new 17.5% WHT rate on JCP payments, become effective as of January 1, 2026.

On the other hand, changes regarding social contributions (CSLL increase for the financial sector and reduction of PIS/Cofins tax benefits) and IPI are subject to the 90-day waiting period (nonagesimal anteriority) and will become effective as of April 1, 2026.

Our Tax Consulting and Planning team continues to monitor any potential changes and relevant discussions that may impact this matter.