Fund Taxation Alert 2025-18

Generally, dividends are tax-exempt in Brazil. An exception is Interest on Equity, which allows companies to treat shareholder remuneration as a tax-deductible corporate expense. Because the company benefits from this deduction, the corresponding payment is subject to a mandatory 15% withholding tax (“WHT”) at the shareholder level, applicable to both residents and non-residents.

On 5 November 2025, Brazil’s Congress approved a tax bill introducing a 10% withholding tax on dividends paid to non-resident shareholders applicable to profits generated from 2026 onward. The bill now awaits presidential enactment and may still be amended by Congress.

Certain entities are fully exempt from the new WHT, including foreign governments (subject to reciprocity), sovereign wealth funds, and qualifying pension or retirement funds, as defined by regulation. Dividends derived from profits generated up to 31 December 2025 remain exempt provided that the distribution is approved by that date and paid in accordance with the approved terms.

A refund mechanism (Art. 10‑A) allows foreign investors to claim relief where the company’s statutory effective tax rate (ETR) together with the 10% WHT, exceeds Brazil’s nominal composite corporate tax rate (generally 34%, higher for the financial sector).

For further details please access our KPMG Brazil Newsletter. 

If the law is enacted in 2025, the new rules will come into force on 1 January 2026.

Brazilian double tax treaties traditionally permitted withholding tax rates up to 15%, while more recent treaties include a 10% cap. Therefore, Brazil’s existing treaty network does not restrict the application of this new 10% WHT. Additionally, the refund mechanism should not apply to non-resident investment funds.

Residents and non-resident investors with exposure to Brazil should closely monitor the legislative developments and be prepared to assess any further implications.