Lucro Real or Lucro Presumido for a Foreign-Owned Subsidiary in Brazil

Few decisions shape a Brazilian subsidiary’s tax bill as much as the method used to calculate corporate income tax. Brazil offers two main regimes to companies outside the Simples Nacional: Lucro Real, which taxes actual accounting profit adjusted by tax rules, and Lucro Presumido, which taxes a fixed percentage of revenue regardless of the profit actually earned. For a foreign-owned company, the choice is often narrower than it looks, and since 2026 the numbers behind it have changed.

The two methods in one table

Both methods apply the same rates: corporate income tax (IRPJ) at 15%, plus a 10% surcharge on the portion of taxable profit above R$ 20,000 per month (R$ 60,000 per quarter), and the Social Contribution on Net Income (CSLL), generally at 9%.

When Lucro Real is mandatory

Under Law 9,718/1998, article 14, a company must use Lucro Real if, among other cases:

• its total revenue in the previous year exceeded R$ 78 million (or a proportional amount if it operated for less than 12 months);
• it has profits, income or capital gains from abroad;
• it is a bank, credit institution, insurer or similar financial entity;
• it benefits from certain tax incentives tied to income tax exemption or reduction.

The second item matters for foreign groups. A Brazilian subsidiary that receives income from abroad, for example interest on a loan to another group company or gains from a foreign investment, falls into Lucro Real regardless of its size. Exporting services is a different situation and should be analyzed case by case, because export revenue is earned in Brazil from a foreign customer, not “profit from abroad” in the sense of the law.

What changed in 2026: a higher presumption above R$ 5 million

Complementary Law 224/2025, part of the federal government’s cut of tax benefits, increased the presumption percentages of Lucro Presumido by 10% on the portion of annual gross revenue above R$ 5 million. The increase is relative, not ten percentage points: a 32% presumption for services becomes 35.2% on the excess revenue, and 8% for the sale of goods becomes 8.8%.

• IRPJ: the higher percentages apply from January 1, 2026.
• CSLL: because of the 90-day rule for social contributions, from April 1, 2026.
• Quarterly calculation: the R$ 5 million threshold is applied proportionally per quarter (R$ 1.25 million), with an adjustment at year-end, according to Federal Revenue regulations.

The change is being challenged by taxpayer associations on constitutional grounds. Until a court decides otherwise, it applies, and companies should budget for it.

A hypothetical comparison

Consider a hypothetical Brazilian services subsidiary with annual revenue of R$ 20 million, deductible costs of R$ 17 million and therefore an accounting profit of R$ 3 million (15% margin), with no tax adjustments, no JCP and full-year 2026 rules for both taxes. Under Lucro Presumido, the presumed profit for IRPJ would be 32% of the first R$ 5 million plus 35.2% of the remaining R$ 15 million, about R$ 6.9 million, more than twice the actual profit. Under Lucro Real, the tax base would be the R$ 3 million actually earned.

That simple example favors Lucro Real for income taxes. The picture for PIS and Cofins is the opposite: the cumulative 3.65% under Lucro Presumido is usually cheaper for a services company with few creditable costs than the 9.25% non-cumulative rate under Lucro Real. The right answer depends on margin, the share of costs that generate PIS and Cofins credits, payroll, expected losses and whether the group will use JCP. It has to be modeled with the subsidiary’s own numbers, not with a rule of thumb.

Practical points for foreign-owned subsidiaries

• Start-ups and loss-making years favor Lucro Real. Losses carried forward reduce future taxes; under Lucro Presumido, a loss-making year still pays tax.
• The choice is made once a year. It is defined by the first tax payment of the year and applies to the whole calendar year.
• Group reporting does not decide the regime. Headquarters will receive IFRS or US GAAP numbers in either case; the Brazilian regime only changes local taxes.
• Transfer pricing and withholding taxes apply under both methods. Intercompany services, royalties and loans follow Law 14,596/2023 and withholding rules regardless of the regime (see our transfer pricing guide).
• The tax reform changes the PIS and Cofins side. From 2027 the CBS replaces PIS and Cofins with a broad credit system, which reduces the advantage of the cumulative regime. Decisions taken now should look at the transition (see Brazil’s tax reform explained for foreign headquarters).

Frequently asked questions

Can a subsidiary of a foreign group use the Simples Nacional?

No. Companies with a legal entity shareholder, or with a shareholder resident abroad, cannot opt for the Simples Nacional under Complementary Law 123/2006 (article 3, paragraph 4, and article 17, item II).

Can the company switch from Lucro Presumido to Lucro Real during the year?

As a rule, no. The option is annual. A company that exceeds the revenue limit during the year must move to Lucro Real from the following year.

Does the regime affect dividends to the parent?

Indirectly. The regime changes the tax paid by the subsidiary, and therefore the profit available. Dividends paid abroad are subject to 10% withholding tax since 2026 under either regime (see Brazil’s 10% tax on dividends paid abroad).

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. Our tax team models Lucro Real and Lucro Presumido with the subsidiary’s own figures, including the 2026 changes and the tax reform transition, and our accounting team runs the chosen regime month after month. See our tax advisory service or talk to our consultants.