Brazilian Government proposes a 10% Withholding Tax on dividends

Brazilian Government proposes a 10% Withholding Tax on dividends

In March 2025, the Brazilian Government presented Bill No. 1,087/2025 aiming to significantly increase the personal income tax exemption threshold (from approx. BRL 2,8k up to BRL 5K).

As compensation for this measure, the Bill proposed (i) a new 10% Withholding Tax (WHT) on dividends paid by Brazilian companies and (ii) a new minimum effective personal tax rate rule.

These proposals are detailed below.

WHT scope: the WHT would apply to dividends paid by Brazilian companies to:

  • Brazilian shareholders, when the dividends paid per company surpass BRL 50k monthly.

  • Foreign shareholders, regardless of the value.

Brazilian shareholders (minimum effective personal tax rate): the dividends taxation proposal was presented by the Brazilian Government in the context of establishing a new minimum personal income tax rule for high income Individuals, considering Brazilians who earn:

  • more than BRL 1.200k yearly (BRL 100k monthly), which will be subject to a minimum 10% effective income tax rate; and

  • more than BRL 600k yearly (BRL 50k monthly), which will be subject to a minimum variable progressive tax rate, which ranges from 0% (beginning from BRL 600k yearly) to 10% (until reaching 1.200k BRL yearly).

Foreign shareholders: the bill of law did not establish a minimum effective tax rate for non-residents. Thus, for those individuals, the WHT will be final, except for the tax credits rule described below.

Tax credits: if the effective corporate income tax rate paid the company added by the 10% WHT tax rate surpasses the nominal tax rates (34% general, 40% for financial institutions or 45% for banks) plus the 10% WHT tax rate, the beneficiary of the dividend will have the right for a tax credit. This credit will be correspondent to the difference between the nominal rates with the effective income tax rate plus the 10% WHT.

Political scenario and next steps: the proposal to reintroduce dividend taxation in Brazil (eliminated in 1995) is not new. In 2021, the former federal administration proposed a 20% WHT on dividends exceeding BRL 20k. This proposal faced a relevant resistance before Congress, and it turned out to be dismissed. However, the current Bill of Law might be more appealing, as (i) it is less aggressive than the 2021 proposal and (ii) it is directly linked to the increase of the income tax exemption threshold. The approval of the Bill now depends on the Congress, which may also provide some changes in its text. If approved, it shall be in force already in 2026.

Our Tax Team from Waitman & Skolimovski Advogados is available to clarify any doubts on matter.