Brazil is undergoing a tax revolution aiming at reducing the bureaucratic burden on enterprises, curbing tax-evasion and achieving a sustainable GDP/public debt ratio. Congress has passed two constitutional amendments and six major tax laws which shall be complemented by several other ancillary acts such as decrees, manuals, and tax platforms, both at national, state, and local levels. As a result, citizens, companies, and nonprofits will face a new tax scenario. In this brief note we shall highlight the major changes, divided into topics.

GRANTS TO NONPROFITS

The exemption of State Inheritance & Gifts Tax for donations to nonprofits has been enlarged by Constitutional Amendment 132. It now encompasses not only the classical triad of educational, welfare and health organizations but also any other organizations pursuing causes of social and public relevance, including religious based organizations and technological and scientific institutions. 

The constitutional commandment has been detailed in Complementary Law 227 (the LC 227) that conceptualized causes of social and public relevance as those dedicated to the promotion of fundamental rights and social and environmental policies set in the Brazilian Constitution. Furthermore, it established that the benefit will be effective immediately after the submission of a simplified declaration of purposes and fulfillment of legal requirements to State authorities, therefore simplifying the current burdensome procedure to obtain time-defined or transaction-based exemptions.

Despite such benefit, the same constitutional amendment introduced a new VAT which shall be shared by the federal government (through the CBS) and the state and city counterparts (through the IBS). CBS and IBS shall be levied upon all onerous supplies of goods and services, which pursuant to LC 227 shall include grants benefiting the grantor. This category includes project sponsorships where the parties agree to expose grantor’s trademarks on websites, t-shirts and printed materials, a quite widespread practice in Brazil. As a result, State Inheritance & Gifts Tax will not apply to those cases, but they will be assessed by the CBS/IBS VAT, at a rate that shall achieve 26,5% at the end of the transition period in 2033.

GRANTS BY NONPROFITS

Before the Constitutional Amendment 132, only grants made to nonprofits were tax-exempt. All grants made by them were taxed except if made to other nonprofits or to state bodies. Now, the exemption encompasses both aisles of the economic flow.

GRANTS TAX INCENTIVES

Constitutional Amendment 109 aimed at achieving a sustainable GDP/public debt ratio and set a goal of reducing the current tax benefits from 4.5% to 2% of the GDP until 2029. As a result, Congress passed three laws that must be addressed together. The first one is Law 14.973/2024 establishing mandatory and detailed monthly reports of any tax benefits enjoyed by companies and nonprofits, which is being made public to society at large on a federal website: Portal de Dados Abertos. 

The second law was Law 15.270/2025 which, supported in the data obtained by the previously mentioned law, reduced tax benefits enjoyed by companies’ shareholders whose dividends, until then tax-exempt, become taxable at a rate of 10%. Additionally, the law introduced a minimum income tax rate of 10% upon all annual revenues above BRL 1,2M (USD 250K) earned by individuals, prohibiting any tax deductions to reduce such rates. As a result, high-end individuals lost tax benefits to give money to nonprofits.

The third and most impactful law was LC 224, which cut 10% of all tax incentives enjoyed by companies and eliminated federal tax-exemptions enjoyed by nonprofits, which became taxable at a rate of 10% of those applied to companies.

Cutting 10% of all tax incentives implied in reducing potential grants to a myriad of cause-related projects supported in sectorial laws, such as the Children and Elderly Funds, Sports, Cultural, Audiovisual and Recycling Projects as well as Oncological and People with Disabilities Health programs.

EXEMPTIONS GONE?

LC 224 also eliminated federal tax exemptions granted to nonprofits on the social contribution for the financing of social security (Cofins) levied on revenues, and the income tax (IRPJ) and social contribution on revenues (CSSL) levied on annual results. Remained unassed only those with educational, welfare and health aims and those qualified as Public Interest Civil Society Organization (OSCIP) or as Social Organizations (OS) pursuant to the correspondent federal laws.

The revocation of long-based exemptions gave rise to criticism and large mobilizations. As a result, the Federal Revenue Secretariat issued, firstly, a Q&A explaining that the cut would not encompass professional associations. Later, it released a norm (IN/RFB 2307/2026) establishing that all associations remain tax-exempt as well as any other organizations with philanthropic, recreational, cultural, or scientific aims.

Apparently, the case was settled because no tax auditors shall ask nonprofits to pay taxes as long as the IN/RFB remains effective. However, the guarantee is not firm because administrative norms cannot disrespect laws and the Secretary may change his mind in the future. Only a restoration of the exemption by law is guaranteed. Let’s wait for the new curve of the rollercoaster.

By Eduardo Szazi

Partner at Szazi, Bechara Storto Reicher Figueiredo Lopes Advogados