Investor Alert: Brazil Moves Forward with Dividend Taxation
On October 1st, 2025, the Plenary of Brazil’s Chamber of Deputies approved Bill No. 1.087/2025 (“PL 1.087”), which establishes the taxation regime applicable to dividends distributed by Brazilian companies. Following its approval in the Chamber of Deputies, the bill proceeds to the Federal Senate for consideration, where it may be confirmed, amended, or submitted for presidential sanction. The bill represents one of the most significant recent changes to the tax framework governing the distribution of corporate profits in Brazil.
Currently, dividends paid to shareholders, whether resident or non-resident, are not subject to tax withheld at source, as income tax is already levied at the level of the legal entity, primarily through the Corporate Income Tax (IRPJ) and the Social Contribution on Net Income (CSLL). The approved bill modifies this framework by introducing a 10% Withholding Income Tax (IRRF) on dividends at the time of payment to shareholders.
The text also distinguishes between the treatment applicable to resident and non-resident investors. For individual investors resident in Brazil, an annual exemption of up to BRL 50,000 per paying source is provided. For foreign shareholders, however, no exemption applies: the 10% withholding tax will be levied in full on the amount remitted abroad, regardless of its size.
From a corporate perspective, companies with exclusively domestic shareholders may be prompted to review their profit distribution policies, weighing the payment of dividends against retention for reinvestment. Companies with interests held by foreign investors, on the other hand, will need to consider additional effects, particularly in structures involving international holdings, investment funds, or agreements governed by double taxation treaties, whose application will depend on the beneficiary’s jurisdiction and the documentary evidence requirements.
The legislative debate also revisits the role of Interest on Equity (JCP), a mechanism established under Brazilian law whereby a company may remunerate its shareholders based on its net equity, deducting the amount as an expense before the levy of tax on profits. Although PL 1.087 does not eliminate Interest on Equity (JCP), its relevance may be reassessed in light of the potential taxation of dividends.
The bill also establishes a transitional rule: dividends calculated and approved by December 31, 2025 may be distributed without the levy of the new tax. From 2026 onward, however, the 10% withholding tax will generally apply, except in cases expressly provided for by law.
With the bill now under consideration in the Senate, technical aspects related to withholding, offsetting, and alignment with international agreements remain unresolved. If approved without substantial changes, Brazil will adopt a model more closely aligned with international practice.
While awaiting the conclusion of the legislative process, it is recommended that companies reassess their distribution schedules, financial policies, and contractual provisions related to dividends and profits. The bill signals a structural change in the Brazilian tax and corporate environment, with direct effects beginning in 2026.
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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 or as a comprehensive analysis of the matters referred to herein.
