The Brazilian Federal Government issued Provisional Measure (PM) No. 1,094/2021, which was published in an additional issue of the Official Gazette of the Federal Executive on December 31, 2021, which reduces Withholding Income Tax (IRRF) on aircraft and engine finance lease transactions.

The PM, which is still to be reviewed by the National Congress, reduces the IRRF levied on the payment, credit, delivery, use or remittance transactions, by a source located in Brazil, to corporate entities domiciled abroad, as consideration  under aircraft or  engine leasing agreements, entered into by a passenger or cargo regular airline companies with entities domiciled abroad until the end of 2026.

The PM provides for the reduction of the Withholding Income Tax (IRRF) rate, which currently is 15%, to zero, in the next two years, and from 2024 onwards, a gradual increase of 1% per year, resulting in the following rates:

2022 – 0%

2023 – 0%

2024 – 1%

2025 – 2%

2026 – 3%

When issuing the PM, the Executive argued that the rate that had been applied resulted in negative effects on tourism, generating increased costs and hindering the airline sector’s recovery during the pandemic. If approved, the government hopes to reduce travel costs and encourage tourism.

According to the Government, the measure will represent a tax waiver of BRL374 million for 2022; BRL382 million for 2023; BRL378 million for 2024; BRL371 million for 2025; and BRL158 million for 2026.

The measure, which came into effect on January 1st, 2022, needs to be approved by the Chamber of Deputies and the Senate within 120 days, otherwise it will expire.