Brazil: Transfer pricing implications of proposed 10% dividend withholding tax for MNEs
New tax would apply to fiscal years starting after January 1, 2026
The Brazilian Federal Senate on November 5, 2025, passed bill 1,087/2025, introducing a 10% withholding tax on dividends paid to foreign parties, marking a significant change in Brazil's corporate income tax system. This new tax would apply to fiscal years starting after January 1, 2026, excluding profits calculated until 2025 and dividends paid to certain foreign governments, sovereign funds, and foreign entities managing retirement and pension benefits.
Under certain conditions, taxpayers may apply for a tax credit if the combined effective tax rates of the corporate income tax and the withholding tax exceed the nominal corporate income tax rate. Applications must be submitted within 360 days after the relevant fiscal year.
The bill now awaits “presidential sanction” and is expected to be enacted soon.
KPMG observation
This new dividend withholding tax may raise issues for multinational entities (MNEs) operating in Brazil that are subject to transfer pricing rules. In this context, an additional levy such as this directly enhances their cost of doing business in Brazil, thereby raising questions about their tax structure and whether the profitability of such entities remain aligned with the arm’s length principle recently introduced in the Brazilian legislation in 2023.
In fact, it seems that most cases would not give rise to the mentioned tax credit and the yet-to-be enacted regulation brings uncertainty about the procedure along with cash flow issues. Finally, the current limited Brazilian tax treaty network cannot solve the double taxation situations arising from this new dividend withholding tax.
Read a November 2025 report prepared by the KPMG member firm in Brazil