On September 22, 2015, the Brazilian federal government proposed a new rule—Medida Provisória n. 692/2015 ("MP 692")—increasing the income tax rates applicable to capital gains realized by certain taxpayers from a transfer or sale of assets or rights in Brazil. Medidas Provisórias are subject to review, comment and approval by the Brazilian Congress prior to becoming law and being incorporated into the Brazilian legal framework.

On December 9, 2015, a committee composed of members of both the Brazilian Senate and Brazilian House of Representatives approved an amended version of MP 692 (now Projeto de Lei de Conversão n. 27, "PLC 27"). PLC 27 must be duly approved by the Brazilian House of Representatives, the Brazilian Senate, and then the Brazilian President in order to become law and enter into force.

The most relevant changes made to the text of MP 692 were: (i) reduction of the proposed capital gains rates in MP 692, which ranged from 15 percent to 30 percent in the original text, and now range from 15 percent to 22.5 percent as amended by PLC 27, and (ii) increase in the proposed thresholds for each of the capital gains rates originally proposed in MP 692.

The table below shows the differences between the rates and thresholds of the original text in MP 692 and the amended text in PLC 27.

Click here to view table.

Currently, capital gains are taxed at a rate of 15 percent for Brazilian individuals and foreign legal entities that are not subject to a specific tax regime.

Under the Brazilian Constitution, a Medida Provisória that increases taxes becomes effective only in the year following the one in which the measure increasing the applicable taxes was duly approved by Congress and becomes law.

This means that in order for the increased capital gains rates now reflected in PLC 27 to be applicable to capital gains realized in 2016, PLC 27 must be duly approved by both the Brazilian House of Representatives and the Brazilian Senate, in separate sessions, and then be approved by the Brazilian President, prior to the end of 2015. If PLC 27 does not becomes law until 2016, the current 15 percent capital gains rate will be applicable to any capital gains realized in 2016 by Brazilian individuals and foreign legal entities that are not subject to a specific tax regime.