Brazil’s financial landscape is evolving fast. As part of its broader fiscal overhaul under Provisional Measure No. 1,303/2025, the government plans to end the income tax exemption on traditionally incentivized fixed-income securities—namely LCIs (Real Estate Credit Bills) and LCAs (Agribusiness Credit Bills). Here’s what you need to know, how it impacts your investment strategy, and why the change still leaves LCIs and LCAs appealing relative to other options.
What Are LCIs and LCAs?
- LCI: A fixed-income instrument issued by financial institutions to fund real estate operations.
- LCA: A similar instrument focused on agribusiness.
- Why they’ve been popular: For individual investors, both instruments enjoy 0% income tax on yields—making them highly tax-efficient CLM ControllerEY.
What the New Proposal Changes
Under Provisional Measure No. 1,303/2025, effective January 1, 2026, these instruments will now be subject to a 5% withholding income tax (IRRF) on new issuances. Holdings purchased and fully paid by December 31, 2025, will remain exempt—even if sold later EY+1Cultivar.
This aligns them with other incentivized securities—such as CRI, CRA, incentivized debentures, FI-Infra bonds, and select investment funds—all transitioning from tax-exempt to taxed at 5% IRRF EYThe Rio Times.
Why LCIs and LCAs Still Make Sense
Even with a 5% tax, LCIs and LCAs remain attractive:
- Lower tax burden compared to other fixed-income products (CDBs, Tesouro Direto, debentures), which will now face a flat 17.5% tax CLM ControllerEY.
- Savings remain unattractive: Despite being tax-exempt, saving accounts yield very low returns (~6% p.a.) while LCIs/LCAs still offer higher effective returns even post-tax CLM Controller.
- Investor behavior tip: Consider locking in current tax-exempt conditions this year (2025) if suitable rates are available—and beyond, use new 5% instruments for medium-long-term planning.
Impact Overview
| Feature | Before (until end of 2025) | After (from Jan 1, 2026) |
|---|---|---|
| Income tax on LCIs/LCAs | 0% | 5% withholding tax (IRRF) |
| Fixed-income alternatives | 15–22.5% (regressive) | Flat 17.5% |
| Savings account | Exempt, but very low yield | Still exempt, but yields lag |
Broader Context: Why Now?
According to Finance Minister Fernando Haddad, the overhaul aims to address chronic fiscal deficits, increase government revenue, and align tax treatment across investment types. Expected tax yield from these changes, including the roll-back of exemptions on LCIs, LCAs, CRIs, CRA, and debentures, is estimated to be approximately R$2.6 billion in 2026 Cultivar.
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