The Brazilian Federal Government decided to reduce from 20% to 17% the percentage of the maximum income tax rate required from the low-tax countries classified as "favored taxation country or dependency" (país ou dependência com tributação favorecida) or "privileged fiscal regime" (regime fiscal privilegiado). This measure was adopted by means of Ordinance (Portaria) No. 488, of November 18, 2014 (MF Ordinance 488/2014), issued by the Minister of Finance which came into force as of the date of its publication in the Official Gazette of the Union (Diário Oficial da União – DOU)1.

According to article 1 of MF Ordinance 488/2014, it is reduced to 17% the percentage mentioned in the preamble of article 24 and items I and III of the sole paragraph of article 24-A, both of Law No. 9,430, of December 27, 1996 (Law 9,430/1996), for the countries, dependencies and regimes that are aligned with the international standards of fiscal transparency, as defined by the Brazilian Internal Revenue Service (Secretaria da Receita Federal do Brasil - SRF), and also complying with all the other conditions laid down by articles 24 and 24-A of Law 9,430/1996.

Therefore, as of December 1st, 2014, the definitions of the two expressions used in Brazil to refer to tax haven jurisdictions have been revised as follows:

Favored taxation country or dependency means any country or dependency of a country:

(a) that does not impose tax on income or, when imposes, it is a low-tax country, in which the applicable income tax rate is equivalent to any percentage varying between zero and 17% (maximum)2; and

(b) whose legislation does not permit access to information concerning the corporate structure of the legal entities, their shareholders or partners or the identification of the effective beneficiary(ies) of the earnings allocated to non-residents. This situation happens: (i) whenever there is lack of information or confidentiality (opacity) in relation to the corporate structure of the foreign company, i.e. if the list of shareholders or partners is not disclosed; and/or (ii) if is not possible to identify the Ultimate Beneficial Owner (UWO), i.e. the person that holds the ownership of the shares of the foreign company3.

Privileged fiscal regime means any jurisdiction that met one or more of the following requirements4:

(i) it does not tax income or where the maximum applicable tax income rate is below 17%;

(ii) it grants fiscal advantages to a non-resident individual or legal entity:

(a) without requiring that substantial economic activity be made in the country or dependency; or

(b) conditioned to the non-exercise of substantial economic activity in the country or dependency;

(iii) it does not tax the earnings obtained outside its territory or imposes a maximum applicable rate below 17% to such earnings;

(iv) it does not permit access to information regarding the capital stock structure, ownership of assets or rights or to the economic transaction entered into between the parties.

It is the first time that the Executive Branch uses its prerogative to change this percentage. The new 17% percentage was fixed as a result of the reduction in income tax rates in other countries, mainly from Eastern Europe that led to percentages less than 20%. Therefore, the reason of this reduction is to compete with such countries in order to attract foreign investments to Brazil.

In 1996, when Law 9,430/1996 was enacted, the average tax on income of the countries of the Organization for Economic Co-operation and Development (OECD) was 36.6%. In 2013, that figure fell to 25.5%.

Consequently, the ceiling of 20% was too high, which could force the Brazilian Government to include other countries in the list of tax haven jurisdictions only because of the tax rate. With this change, the number of economies that are classified as tax haven jurisdictions may be reduced. Today, 64 countries fit that concept.

The SRF must still regulate what are the standards of fiscal transparency required to be deleted from the list of tax haven jurisdictions but the countries, dependencies or regimes that are already included on such list will not be automatically withdrawn. Each jurisdiction will have to ask for its removal to the SRF.


1.MF Ordinance 488/2014 was published in the DOU on December 1st, 2014.

2.According to the provisions of the preamble of article 24 of Law 9,430/1996.

3.This situation is provided for in paragraph 4 of article 24 of Law 9,430/1996.

4.This second definition is provided for in article 23 of Law No. 11.727, of June 23, 2008, which approved new wording for articles 24-A and 24-B of Law 9.430/96. Article 30 of Law 11.941/2009, clarified that it is not necessary to attend simultaneously and cumulatively all the requirements listed above and that it is sufficient to attend only one for a country or dependency to be treated as a privileged fiscal regime.

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