Alerts
- 19 March 2025
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Brazilian Government proposes to introduce withholding tax on dividends payable to non-resident investors and a minimum income tax rule on high income Brazilian individuals
The Brazilian government presented a bill of law to Congress (Bill No. 1,087/2025) that if approved would exempt income tax for individuals earning up to BRL 5 thousand a month. To offset the expected reduction in tax collection, two measures are included in the same proposal (i) the collection of withholding income tax (“WHT”) on dividends paid to non-resident shareholders; (ii) the introduction of a minimum income tax of 10% to the so-called “high income Brazilian individuals”.
- WHT on dividends payable to non-resident shareholders
The WHT on dividends paid to non-resident shareholders would apply at mandatory fixed 10% rate, regardless of the jurisdiction of the beneficiary. The proposal sets a rate which is compatible with some of the double taxation treaties signed by Brazil in recent years (such as the one with Switzerland and the most recent one with Norway), which provide for a 10% WHT limitation on dividends.
The new legislation provides a mechanism to allow for a partial or total refund (to be claimed within 360 days of the end of each financial year) of the WHT on dividends paid to non-resident shareholders in case the sum of the effective corporate income tax payable by the legal entity distributing the dividends plus the WHT on dividends exceed the nominal rates of Brazilian corporate income taxes (34% for most companies and 40% or 45% for financial institutions and alike). In that case, the excess amount would be credited back to the non-resident investor. The bill does not provide for a deadline for the credit to be effectively granted to the non-resident nor how this credit may be used.
This new taxation is expected to impact multinational groups investing in Brazil and Brazilian companies with non-resident investors, especially in cases where (i) the effective corporate income tax rate in Brazilian is currently below nominal rates due to certain tax incentivized deductions and (ii) the country of residence of the shareholder has a participation exemption regime under which the Brazilian dividends are not subject to tax or is subject to low tax.
There are different aspects to be reviewed to determine the effective impact in each case, including the determination of the effective corporate income tax rate which follows a more simplified approach in comparison with that of the Pillar 2 based legislation.
- Minimum income tax on high income Brazilian individual
The bill introduces a set of rules to compute and collect the so-called Minimum Personal Income Tax (“Imposto sobre a renda das pessoas físicas mínimo” – IRPFM).
These rules include (i) a withholding tax of 10% on dividends paid by the a legal entity to the same Brazilian individual resident in an amount exceeding BRL 50,000 (fifty thousand reais) in a given month; and (ii) an additional tax on Brazilian individuals with annual income of more than BRL 600,000 (six hundred thousand reais), which would apply at progressive rates of up to 10%.
There is also a reduction factor to the IRPFM in the case of income originating from dividends of Brazilian companies, which is also based on an analysis of the effective corporate income tax payable by the legal entity distributing the dividends, similarly to the WHT credit mechanism on dividends paid to non-resident shareholders.
The bill still needs to be reviewed by Congress and if approved would come into effect from January 2026.
Our Tax and Wealth Planning practices are closely monitoring this issue. For further clarification on this or other topics of interest, please contact one of our professionals.
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