Nowadays, dividend distribution is free of tax in Brazil.

However, the Congress has passed a bill terminating such exemption. The president is to approve such bill (and he will approve it once it is a government’s initiative with the Congress).

Effective January 1st, 2026, dividend paid from a Brazilian entity (including to a foreign shareholder) will be subject to 10% withholding income tax (WIT). Profits already earned in previous years or in the 2025 tax year will also be subject to the 10% WIT rate if distributed in 2026 or after unless the shareholders approve the distribution of such profits as dividends no later than December 31st, 2025. If this requirement is met, such approved dividend distribution will be tax free.

Regarding 2025 profit, a trial balance sheet would have to be prepared and the distribution of profits resulting thereof should be approved this year to avoid the 10% WIT on the dividends resulting from such profit.

Dividends must be approved - not necessarily paid - no later than December 31, 2025.

There is a mechanism that allows a tax credit if the combined rate of income tax paid by the entity and the shareholder exceeds the nominal rate of corporate income tax in Brazil (34%).

Dividend paid to a natural person resident in Brazil will be taxed at the 10% rate if such payment exceeds BRL 50,000.00 per month. If the overall yearly earnings of such person (not only dividends) exceed BRL 600,000.00, an additional income tax rate may apply from 0 to 10%.

Please let us know if you need any assistance to avoid such extra taxation.

TECH Advogados