Government can take up to 10% of income that is currently exempt from income tax; understand

The combination of two proposals from the federal government should change the scenario for fixed income investments in Brazil. They are the Minimum Personal Income Tax (IRPFM), an attempt to increase taxation of the wealthiest, and the taxation of investments that are currently exempt from IR.

Officially, the government intends to raise the Income Tax on income from Real Estate Credit Letters (LCI) and Agribusiness Credit Letters (LCA) and Real Estate Receivables Certificates (CRI) and Agribusiness Receivables Certificates (CRA) from zero to 5%. However, with the implementation of the IRPFM later on, in practice the tax charged on such investments could even double, reaching 10% for higher-income taxpayers.

The creation of the IRPFM is provided for in Bill 1,087/2025, presented in March. According to the government, the tax will serve to compensate for the increase in the tax-free bracket to R$5,000. The proposal is currently being processed in the Chamber of Deputies and the rapporteur, Arthur Lira (PP-AL), is expected to present his opinion in the second week of July. The government is counting on the approval of the bill this year, to come into effect early next year.

The new taxation of financial investments , in turn, was established by Provisional Measure 1,303, published on June 11. Although the MP has already been published, the collection of IR on investments will only begin in 2026, if it receives Congressional approval.

The fixed income investments in question (LCIs, LCAs, CRIs, CRAs) have gained strength in recent years because they are not taxed on income. According to B3, the volume invested in LCAs grew 23.7% in the last 12 months, reaching R$584.8 billion this Thursday (26). LCIs increased 30.2%, totaling R$471.9 billion.

Why the government wants to tax LCIs, LCAs and other investments

The government says that the measures seek tax justice: Minister Fernando Haddad (Finance) has been repeating that the idea is to tax "penthouse residents" . The Ministry of Finance estimates that 141 thousand people, or 0.06% of the population, will be affected by the minimum income tax on high income.

There is also the intention, mainly with MP 1,303, to raise more resources in order to reduce the fiscal deficit.

With the revocation of the exemption on incentivized bonds alone, the government expects to raise R$2.6 billion next year. The expected revenue from the establishment of the IRPFM is R$25.2 billion.

Loss of profitability from LCI and LCA will be greater for those who earn more

Those who earn more than R$50,000 per month (R$600,000 per year) will feel the impact on their financial investments more, due to the effect of the new taxation on the future IRPFM. It is this impact that could mean that, instead of 5%, the IR rate on investments could reach up to 10% in practice.

The government's idea with the IRPFM is to make those who earn more than R$600,000 per year pay a minimum percentage of Income Tax. This rate will start close to zero and will gradually increase according to income, reaching a ceiling of 10% for incomes starting at R$1.2 million per year.

According to the government's proposal, investments exempt from income tax are not included in the IRPFM calculation basis. Until recently, therefore, the income from investments such as LCI and LCA would not be included in the minimum income tax calculation. With MP 1,303, however, such letters are no longer exempt and are included in the income tax calculation basis for the wealthiest. And so they can be taxed at up to 10% when applying the IRPFM, instead of the original 5%.

"The proposal indirectly taxes these investments by including them in the IRPFM calculation base", says Luís Garcia, partner at Tax Group and MLD Advogados Associados.

Today, an investor with an annual income of R$900,000 – of which R$600,000 is in dividends (currently exempt) and R$300,000 in income from LCI and/or LCA – does not pay taxes on these gains. With the changes, he would pay R$30,000 in taxes.

Bruno Cazarim, tax specialist at Gomez Cazarim Advogados, warns: "Inclusion in the IRPFM may increase effective taxation to up to 10%. This may make products such as CDBs or traditional debentures more advantageous in some cases."

The paths for investors

Experts point out two possible paths for investors:

Judicial challenge

• Questioning legality based on the constitutional principle that taxes can only be created or increased by specific law
• Claiming disguised double taxation or violation of legal certainty

Garcia also points out that there would be a difference in treatment between investors based on their income. For Sidney Lima, an analyst at Ouro Preto Investimentos, "the risk is compromising investor confidence."

Portfolio restructuring

• Diversify your portfolio by reducing exposure to incentivized securities
• Evaluate migration to private pension plans or exclusive funds
• Consider equity structures such as closed-end funds or holding companies

Measure could cause capital flight

Garcia warns that government initiatives could cause capital flight from the country, as they encourage investors to evaluate options abroad, where tax treatment may be more predictable.

Another need is to continuously monitor the progress of the provisional measure and the bill. The proposals still need to be voted on by the National Congress. There is strong pressure from various economic sectors for adjustments, which could result in significant changes to the final text and alter tax planning and portfolio restructuring strategies.