BRAZIL Law and Practice Contributed by: Júlio de Oliveira, Stephanie Makin, Gabriel Lacerda and Carlos Augusto Cruz, Machado Associados
2.4 Loss Relief Under the actual profit regime, tax losses can be car - ried forward without any statute of limitations, pro - vided that the offsetting does not exceed 30% of the taxable basis of any given period. The exception is companies under judicial restructuring, which can offset the full amount of tax losses. No carry-back is allowed. Non-operating tax losses may be offset only against non-operating profits. A restriction to the offsetting of tax losses is imposed where there is a change (i) of control and (ii) in the business activities pursued by a Brazilian company. Accordingly, a company cannot offset its tax losses if, from the date of the accrual of such losses to the date of their offsetting, a change in the control of the company and in the company’s business activities has occurred concurrently. In the case of a spin-off, the company forfeits tax losses proportionally to the value of the spun-off part of its net worth. In the case of a merger, the merged company’s tax losses cannot be offset against the profits of the surviving company. 2.5 Deduction of Interest The general rule for the deduction of interest paid by local corporations is that the interest paid will only be considered deductible for tax purposes if it can be demonstrated that the loan to which the interest is related was necessary for the maintenance of the company’s activity. In addition to the general rule, the deduction of inter - est derived from loans with related parties and/or par - ties resident in tax havens, or subject to privileged tax regimes, is subject to compliance with thin capitalisa - tion and transfer pricing rules. Regarding the thin capitalisation rules: • if the creditor is a related party, the total debt amount shall not exceed twice the value of the equity stake held by the related party in the Brazil - ian company’s net worth; • if there is more than one creditor that is a related party, the total debt amount shall not exceed twice
tourism; manufacturing in several areas, including machinery and equipment, food and beverages, and pharmaceuticals; electro-electronic, mechatronics, information technology and biotechnology; and the component industry). Projects approved as of January 2026 shall be subject to a 67.5% IRPJ reduction, as provided for in Supplementary Law 224/2025, which reduces tax benefits. Oil and Gas Sector Incentives Companies that act in the oil and gas sector in Bra - zil may fully deduct from the IRPJ and CSLL taxable basis expenses and depreciation/exhaustion charges related to the exploitation of oil and gas. In some situ - ations, an exemption of withholding income tax may apply. Agricultural Sector Incentives Companies that act in the agricultural sector in Brazil are allowed to fully offset their tax losses carried for - ward, without the need to comply with the 30% limi - tation mentioned in 2.4 Basic Rules on Loss Relief , as well as to benefit from accelerated depreciation of goods acquired for use in agricultural activities for IRPJ/CSLL purposes. Incentives for the Modernisation of Equipment To encourage the modernisation of machinery and equipment used by Brazilian companies in their pro - duction processes, new goods destined for the fixed assets of companies in specific economic sectors may be subject to accelerated depreciation. Companies in the economic sectors in question will be able to consider depreciation of: • up to 50% of the value of the asset in the year in which the asset is installed, or put into service or a condition to produce; or • up to 50% of the value of the asset in the year following that in which the asset is installed, or put into service or a position to produce. The sectors, machinery and equipment that can ben - efit are defined by administrative regulations.
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