On December 26, 2025, Complementary Law (LC) No. 224/2025 was enacted, regulated by Decree No. 12,808/2025, Ordinance No. 3,278/2025, and RFB Normative Instruction No. 2,305/2025. The law primarily provides for the reduction of federal tax incentives through a linear cut.
In addition, the LC increased taxation applicable to:
- Fintechs, with a gradual increase in the CSLL rate through 2028;
- Interest on equity (JCP), from 15% to 17.5%; and
- Fixed-odds betting (bets), with taxation increased to 13% in 2026, 14% in 2027, and 15% in 2028.
Which taxes are subject to the linear cut of incentives under LC No. 224/2025?
- PIS
- Cofins
- IRPJ
- CSLL
- Import Tax (II)
- IPI
- INSS
Which tax incentives are covered by the reduction?
- Incentives listed in the Tax Expenditure Statement annexed to the 2026 Annual Budget Law (e.g., PAT, REIDI, FIP-IE, etc.);
- Presumed profit regime, for gross revenue exceeding BRL 5 million per year;
- Special Regime for the Chemical Industry (REIQ);
- Presumed IPI credits;
- Presumed PIS/Cofins credits (including on imports);
- Zero-rated PIS/Cofins rates (including on imports).
Which tax incentives are not covered by the reduction?
- Constitutional immunities;
- Manaus Free Trade Zone and Free Trade Areas;
- Zero rates applicable to items comprising the national basic food basket;
- Incentives granted for a fixed term to taxpayers who have already fulfilled an onerous condition for their enjoyment (projects approved by the Federal Executive Branch by December 31, 2025);
- Nonprofit philanthropic entities (OSCIP and OS);
- Simples Nacional;
- Incentives subject to a global quantitative cap in the granting law;
- Minha Casa, Minha Vida;
- Prouni;
- Ad rem rates, expressed in reais per unit of measurement;
- Tax offsets related to free electoral advertising airtime;
- CPRB; and
- Industrial policy for the information and communication technology sector and the semiconductor sector (PADIS, IT, ICT, Information Technology and Automation, Machinery and Equipment – CNPq).
How does the reduction of tax incentives work?
For each tax, LC No. 224/2025 establishes a standard taxation system, which serves as a benchmark for applying the cut to tax incentives.
| Tax | Standard System |
| IRPJ/CSLL | Actual profit (Lucro Real) |
| IPI | TIPI |
| Cumulative PIS/Cofins | Combined rate of 3.65% |
| Non-cumulative PIS/Cofins | Combined rate of 9.25% |
| PIS/Cofins–Importation (goods) | Combined rate of 11.75% |
| PIS/Cofins–Importation (services) | Combined rate of 9.25% |
| Import Tax | TEC |
| Employer Social Security Contribution (INSS) | Total remuneration as the tax base |
Based on this framework, tax incentives are reduced as follows:
| Tax Incentive | Reduction Mechanism |
| Exemption and zero rate | Rate equivalent to 10% of the standard system, without allowing the purchaser to take credits |
| Reduced rate | Rate equivalent to the sum of 90% of the reduced rate and 10% of the standard system |
| Reduction of tax base | Application of 90% of the reduction |
| Presumed credit | Utilization of 90% of the credit |
| Reduction of tax due | Application of 90% of the reduction |
| Revenue-based regimes | Increase of 10% in the applicable percentage |
| Presumed base regimes | Increase of 10% in the presumption percentages |
When do the reductions take effect?
- IRPJ and Import Tax (II): as of January 1, 2026.
- All other taxes (PIS/Cofins, CSLL, IPI, and INSS): as of April 1, 2026, due to the 90-day prior notice rule (anterioridade nonagesimal).
What is controversial and may be challenged in court regarding LC No. 224/2025?
Prohibition on taking PIS/Cofins credits
Among the tax incentives covered by the linear cut is the zero-rating of PIS/Cofins.
As a result, items previously subject to a zero rate or exemption from PIS and Cofins have become taxable under these contributions.
Thus, instead of being acquired without taxation, such items are now subject to a 0.925% rate (considering a domestic transaction under the non-cumulative regime).
However, Article 4, §7 of the LC does not allow the purchaser of these goods to take PIS/Cofins credits on the acquisition.
This restriction violates the non-cumulativity principle, as it prevents the purchaser from taking PIS/Cofins credits in a transaction subject to the payment of the contributions, as well as the principle of equality, since it places the purchaser at a disadvantage compared to other purchasers who are normally entitled to credits on acquisitions subject to PIS/Cofins.
Although the STF has established, in a general repercussion ruling (Theme 756), that the non-cumulativity of PIS/Cofins may be regulated by ordinary law, the same decision expressly requires that equality be respected.
Presumed profit regime (Lucro Presumido)
The linear cut established by the LC also reaches the presumed profit regime, treating it as a federal tax incentive or benefit.
However, the presumed profit regime does not fit this classification. Rather, it is a method for calculating income tax, adopted as a structural alternative to the actual profit regime (lucro real), with the purpose of simplifying compliance and reducing compliance costs.
The LC seeks to treat the actual profit regime as the standard taxation system, but income tax legislation does not do so, as it considers both regimes to be autonomous systems for determining the tax base of IRPJ and CSLL. Accordingly, this cut may disrupt the tax system.
In addition, there is a distortion of the very foundations of Constitutional Amendment (EC) No. 109/2021, which underpins LC No. 224/2025.
Incentives listed in the 2026 Annual Budget Law (LOA)
The incentives listed in the Tax Expenditure Statement annexed to the 2026 Annual Budget Law (LOA) are subject to the linear cut.
However, the 2026 LOA had not yet been enacted in 2025, which opens room for challenges regarding the start date of the increased taxation.
Thus, it may be argued that, for these incentives (such as PAT, REIDI, FIP-IE, etc.), the linear cut may only be applied as of the publication of the 2026 LOA, observing both the annual and 90-day prior notice rules.
Accordingly, if the LOA is published in 2026:
- for IRPJ-related incentives, the cut would only apply as of 2027; and
- for social contributions such as PIS, Cofins, and CSLL, the cut would apply 90 days after the publication of the LOA.
Onerous condition with project approved by 2025
When listing the incentives not covered by the linear cut, the LC refers to those granted for a fixed term to taxpayers who have already fulfilled an onerous condition to enjoy them.
However, the LC defines an onerous condition exclusively as an investment set out in a project approved by the Federal Executive Branch by December 31, 2025.
There are, however, incentives granted for a fixed term and subject to conditions that do not depend on prior approval by the Executive Branch or whose conditions are not investment-related — such as, for example, job creation or reductions in pollutant emissions.
Failing to preserve tax incentives subject to a fixed term and conditions that do not require prior Executive approval or that are not investment-based violates the constitutional guarantee of vested rights, as well as the principles of non-surprise and legitimate expectations of taxpayers.
This issue is already the subject of a Direct Action of Unconstitutionality (ADI No. 7,920) filed before the STF.
Accordingly, it is advisable to analyze the individual circumstances related to each tax incentive and to consider judicial measures to prevent a more burdensome application of the tax incentive cuts than is permitted under the legal system.
