The Brazilian government has enacted Law 15.270/2025, which reintroduces the taxation of dividends paid to nonresident legal entities and individuals (as well as resident individuals) starting 1 January 2026 (for prior coverage, see the article in the November 2025 issue of Corporate Tax News). Dividends distributed by Brazilian companies have been exempt from tax since 1996, which has played an important role in the country’s ability to attract foreign investment.
Before the enactment of Law 15.270/2025, Brazil was one of only a handful of countries that did not tax dividends. This law reintroduces a 10% withholding tax on dividends remitted overseas to offset expected tax revenue shortfalls from other provisions in the law. In particular, the revenue from the dividend withholding tax will be used to pay for an increase in the personal income tax exemption threshold for low income Brazilians (i.e., taxpayers with monthly income equal to or lower than BRL 5,000 per month (previously BRL 3,036))). The law also introduces a minimum tax on high income individuals that will be used to offset the additional cost of the expanded income tax exemption on low income taxpayers. “High income individuals” for these purposes includes individuals who earn more than BRL 50,000 per month (or BRL 600,000 annually) on dividends paid from the same company.
The reintroduction of a dividend withholding tax will have a significant impact on nonresident legal entity and individual shareholders of Brazilian companies. To mitigate double taxation of the dividends, a tax credit is available for foreign shareholders if the adjusted effective tax rate (ETR) of the distributing Brazilian entity exceeds the nominal tax rate (generally 34%). The adjusted ETR is the payer company’s ETR, plus 10% (the withholding tax rate), i.e., if a company’s ETR is 28%, the adjusted ETR is 38% (28% + 10%). In this example, the tax credit will be equal to 4% (38% minus 34%), with the remaining 6% withholding income tax being paid by the shareholder, which will be a cost if it is not recoverable in the shareholder’s home country. The tax credit will be available for foreign shareholders for 360 days counted from the end of each fiscal year.
If the payer company’s ETR is equal to the nominal tax rate, the tax credit will be equal to the withholding tax rate (i.e., 44% minus 34% = 10%). The tax credit will be set off against the withholding tax paid and there will simply be a cash flow issue; the company’s overall ETR will not be impacted. However, this is not the situation in most cases as each company has temporary differences that impact the ETR.
The taxation of dividend distributions will also affect companies taxed in Brazil under the presumed profit method, as the ETR for a service company taxed under this regime is around 11%. In this case, as the difference (i.e., the adjusted ETR minus the nominal rate) will be negative, no tax credit will be available for the foreign shareholder.
According to the law, dividends accrued up to 31 December 2025 are exempt from the withholding tax as long as the dividend distribution is formally approved by shareholders and declared by the same date in accordance with civil or corporate law requirements. This rule raises an obvious difficulty: How can a company close its books on 31 December 2025, approve the distribution of dividends and register the meeting minutes by 31 December 2025? This difficulty is compounded by the rule that companies have until the end of April to disclose their financial statements based on applicable civil or corporate law.
Despite the enactment of Law 15.270/2025, another bill under discussion may amend this legislation. Nevertheless, multinational groups and investors with Brazilian subsidiaries may wish to immediately review their dividend policies and cash repatriation strategies to take advantage of a potential exemption from the dividend withholding tax.
It is important to note that Brazil significantly revised its transfer pricing rules in 2023 to bring them in line with the OECD guidelines starting in 2024. This was followed by the introduction of Pillar Two rules in 2025, a VAT reform is in progress and the controlled foreign company rules may be revised soon, so MNE tax teams should carefully monitor the Brazilian tax environment and compliance obligations.
Hugo Amano
BDO in Brazil
Before the enactment of Law 15.270/2025, Brazil was one of only a handful of countries that did not tax dividends. This law reintroduces a 10% withholding tax on dividends remitted overseas to offset expected tax revenue shortfalls from other provisions in the law. In particular, the revenue from the dividend withholding tax will be used to pay for an increase in the personal income tax exemption threshold for low income Brazilians (i.e., taxpayers with monthly income equal to or lower than BRL 5,000 per month (previously BRL 3,036))). The law also introduces a minimum tax on high income individuals that will be used to offset the additional cost of the expanded income tax exemption on low income taxpayers. “High income individuals” for these purposes includes individuals who earn more than BRL 50,000 per month (or BRL 600,000 annually) on dividends paid from the same company.
The reintroduction of a dividend withholding tax will have a significant impact on nonresident legal entity and individual shareholders of Brazilian companies. To mitigate double taxation of the dividends, a tax credit is available for foreign shareholders if the adjusted effective tax rate (ETR) of the distributing Brazilian entity exceeds the nominal tax rate (generally 34%). The adjusted ETR is the payer company’s ETR, plus 10% (the withholding tax rate), i.e., if a company’s ETR is 28%, the adjusted ETR is 38% (28% + 10%). In this example, the tax credit will be equal to 4% (38% minus 34%), with the remaining 6% withholding income tax being paid by the shareholder, which will be a cost if it is not recoverable in the shareholder’s home country. The tax credit will be available for foreign shareholders for 360 days counted from the end of each fiscal year.
If the payer company’s ETR is equal to the nominal tax rate, the tax credit will be equal to the withholding tax rate (i.e., 44% minus 34% = 10%). The tax credit will be set off against the withholding tax paid and there will simply be a cash flow issue; the company’s overall ETR will not be impacted. However, this is not the situation in most cases as each company has temporary differences that impact the ETR.
The taxation of dividend distributions will also affect companies taxed in Brazil under the presumed profit method, as the ETR for a service company taxed under this regime is around 11%. In this case, as the difference (i.e., the adjusted ETR minus the nominal rate) will be negative, no tax credit will be available for the foreign shareholder.
According to the law, dividends accrued up to 31 December 2025 are exempt from the withholding tax as long as the dividend distribution is formally approved by shareholders and declared by the same date in accordance with civil or corporate law requirements. This rule raises an obvious difficulty: How can a company close its books on 31 December 2025, approve the distribution of dividends and register the meeting minutes by 31 December 2025? This difficulty is compounded by the rule that companies have until the end of April to disclose their financial statements based on applicable civil or corporate law.
BDO Insight
Despite the enactment of Law 15.270/2025, another bill under discussion may amend this legislation. Nevertheless, multinational groups and investors with Brazilian subsidiaries may wish to immediately review their dividend policies and cash repatriation strategies to take advantage of a potential exemption from the dividend withholding tax. It is important to note that Brazil significantly revised its transfer pricing rules in 2023 to bring them in line with the OECD guidelines starting in 2024. This was followed by the introduction of Pillar Two rules in 2025, a VAT reform is in progress and the controlled foreign company rules may be revised soon, so MNE tax teams should carefully monitor the Brazilian tax environment and compliance obligations.
Hugo Amano
BDO in Brazil