Interest on Equity Capital (JCP) represents an alternative to dividends in Brazilian legislation, aimed at remunerating the partners/shareholders of a company. This type of remuneration allows the company to reward its investors by paying interest on the funds they have contributed to the company’s equity. JCP offers flexibility compared to dividends, as it is not mandatory and allows for the deduction of income tax for the company.
However, despite discussions on the subject, Law 14,789/2023 did not eliminate the possibility of deducting JCP; instead, it introduced significant changes in its assessment. Specifically, the legislation changed the way these interest payments are calculated, imposing specific limitations on the equity accounts that can be considered for the calculation.
There were changes to Article 9, Paragraph 8, and the inclusion of Paragraphs 8-A, 8-B, and 8-C to Article 9 of Law 9.249/1995, as detailed below:
| BEFORE | AFTER |
| I – social capital II – capital reserves; III – profit reserves; IV – treasury shares; V – accumulated losses. | I – Fully integrated social capital; II – capital reserves formed upon the subscription of shares; III – profit reserves, except for the tax incentive reserve; IV – treasury shares; and V – accumulated profits or losses. |
In terms of the accounts that can serve as a basis for calculating Interest on Equity Capital (JSCP), the main change introduced by the new legislation results from the need to exclude the tax incentive reserve account from the basis for benefits calculated as of 1, January 2024. Another significant change is the requirement for the social capital to be fully integrated to be included in the calculation basis.
Moreover, it will be necessary to be aware of the variations that may affect the net equity during the fiscal year. In case of variations resulting from corporate actions between dependent parties that do not involve the actual inflow of assets to the legal entity, these should be disregarded for the purpose of calculating the base of Interest on Equity Capital.
In other words, items that do not represent an actual contribution from partners, nor the reinvestment of profits (merely accounting items), have been excluded. Thus, only variations involving the actual inflow of assets to the legal entity will be considered.
Therefore, taxpayers who choose to adopt the use of the interest on equity capital instrument for the year 2024 must observe the new legal requirements, in order to avoid risks of being inquired by regulatory bodies.
