Brazil: Interest on net equity, potential tax changes in 2016

Changes in Brazil to interest on net equity

Pursuant to plans under Brazil’s recent tax package, Provisional Measure MP 694/15 (30 September 2015) introduces new rules for computing the “interest on net equity.”

Related content

In Brazil, a Provisional Measure is an “act” issued by the president, with the authority of law until later approved by Congress. The Provisional Measure is effective as from its date of publication for 60 days, and it may be extended for an additional 60-day period (for a total of 120 days) on a request from Congress. If approved by the Brazilian legislature, MP 694/15 would be effective beginning 1 January 2016.  


Brazilian companies currently can elect to pay or accrue interest on net equity (INE), resulting in deductible interest payments to the payor company. Under the current regime, INE is calculated by applying the daily pro rata variation of the government’s long-term interest rate (TJLP) on the payor company’s net equity (e.g., 7%). Furthermore, a withholding tax is assessed on the INE payment or accrual at a rate of 15%.

Changes to computation

MP 694/15 would change the INE computation, applicable to payments made to both Brazilian residents and non-residents, as follows:

  • The rate of withholding tax on INE would be increased to 18%.
  • The long-term interest rate (TJLP) would be limited to 5%. 

Effective date

If the Brazilian legislature approves MP 694/15, the changes would be effective as of 1 January 2016. 

The new rate of withholding tax could be reduced under the provisions of an applicable income tax treaty, subject to any limitations imposed by the treaty provisions.  

KPMG observation

The proposed changes to the INE calculations may affect multinational companies with investments in Brazil. Accordingly, in light of these potential changes, businesses with investments in Brazil need to consider what opportunities may be available.


For more information, contact a tax professional with KPMG’s Americas Center:


Devon Bodoh | +1 (202) 533-5681 |

Alfonso A-Pallete | +1 (305) 913-2789 |

Murilo Mello  | +1 (305) 913-2781 |

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform