In addition to discussions on the authorization process for the exploitation of fixed-odds betting in Brazil, taxation on bettors' winnings has undergone recent changes.
Law No. 14,790, enacted on December 29, 2023, stipulates that net prizes obtained from bets will be subject to a 15% Individual Income Tax (IRPF) rate.
As part of the betting regulatory package, the Brazilian Federal Revenue Service issued Normative Instruction RFB No. 2,191 (IN) on May 6, 2024, to regulate the taxation of such winnings. The IN mandated that net prizes be taxed exclusively at source upon payment or crediting of the prize, with no allowance for offsetting losses incurred from other bets or sessions to determine net prizes.
However, this instruction quickly became outdated as the National Congress overturned, also in May 2024, some of the President's vetoes on Law No. 14,790/2023 concerning bettor taxation.
The provisions reinstated by Congress stipulate that IRPF will be calculated annually and paid by the last business day of the subsequent month after calculation, eliminating the requirement for withholding tax upon payment or crediting of prizes.
Moreover, the definition of "net prize," reinstated by Congress, states that it will be the positive result earned from fixed-odds bets made each year, after deducting losses incurred from bets of the same nature, contrary to the Federal Revenue Service's IN. With these updates, the Revenue Service is expected to revise its IN to include annual assessment and the possibility of deducting losses.
Congress also reintroduced IRPF exemption for net prizes equal to or less than the first tier of the annual progressive IRPF table (R$ 2.259.20 / US$ 421).
Regarding operators, the law mandates a 12% tax rate on gross gaming revenue (GGR). However, the Ministry of Finance's Regulatory Agenda foresees the issuance of a Ordinance to regulate procedures for revenue sharing by July 2024.
A monitoring fee will also be due from the operating agent, ranging from R$ 54,419.56 (US$ 10,143) to R$1,944,000.00 (US$ 362,484) depending on revenue. The bracket definition will be based on revenue after deducting 12% of GGR. Note that operators will also be subject to corporate taxation (IRPJ/CSLL/PIS/Cofins/ISS).
And tomorrow? How could tax reform impact the sector?
Bill No. 68 was presented by the federal government to regulate tax reform. Among the various topics to be addressed and still discussed by Congress, the proposal establishes a specific regime for the incidence of Goods and Services Tax (IBS) and Social Contribution on Goods and Services (CBS) for the exploitation of fixed-odds betting.
This will significantly impact the taxes paid by operating agents (especially ISS and PIS/Cofins under the current regime), which may vary depending on various factors.
Under this framework, the IBS and CBS rates will be nationally uniform. The proposal also clarifies that the calculation base for IBS and CBS in these cases is the entity's own revenue from promoting this activity, corresponding to the revenue collected, minus prizes paid and legally mandatory allocations.
While the proposal states that foreign domiciled entities providing virtual prediction contest services for bettors residing or domiciled in Brazil will be subject to IBS and CBS at the same rate as domestic companies, it is worth noting that the fixed-odds betting modality can only be legally operated by companies based in Brazil.
Lisa Worcman
Tax Lawyer and partner at Mattos Filho
