In simple terms, Stock Options are provided for in article 168, paragraph 3 of Law No. 6.404 of December 15, 1976 (“Corporation Law”) and are a benefit offered by companies to their employees or service providers, allowing them to purchase company’s shares at a fixed price on a future date. The main objective is to enable these professionals to benefit from the appreciation of the shares over time, aligning their interests with the success of the organization.

The recent ruling by the Superior Court of Justice (STJ) in Special Appeals No. 2069644/SP and No. 2074564/SP brought important updates to the regulation of Stock Options plans in Brazil.

The decision established that, in the context of stock option plans, Income Tax is not levied at the time the shares are acquired, but only when a future sale results in a capital gain. This understanding corrects the previous interpretation by the Brazilian Federal Revenue Office, which treated the exercise of options as a taxable event, considering it a form of compensation for services rendered. As a result, the new understanding creates a legal environment more aligned with international practices and provides greater security to the participants of these plans.

This understanding of the STJ is particularly relevant given the long-standing dispute between taxpayers and the Brazilian Federal Revenue Office, which treated these plans as a form of compensation rather than an investment. The decision acknowledges that the granting of Stock Options is a commercial transaction, not a form of employment compensation. As a result, it is expected that the ruling will serve as a precedent for future decisions and provide clarity regarding the tax treatment of Stock Options.

Another relevant point to consider is Bill No. 2.724/2022, currently under discussion in the Brazilian Congress, which seeks to establish a definitive regulation for Stock Options plans in Brazil. The bill follows the same approach as the STJ, proposing the levy of taxes only upon the sale of the shares, thus preventing double taxation and encouraging the use of this mechanism by startups and technology companies to attract and retain talent.

With these developments, Brazil is making progress in building a more competitive and predictable business environment, bringing itself closer to advanced markets such as those in the United States and Europe. If the bill is passed, we may see an increase in the use of Stock Options plans as a retention and incentive strategy, consolidating the Brazilian business environment and driving more sustainable and dynamic development.

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For more information on the above or other matters, please contact Maristela SA Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br). This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice foreign subsidiary as a comprehensive analysis of the matters referred to herein.