KPMG no Brasil

Brazil Introduces Dividend Withholding Tax and Refund Mechanism for Foreign Investors

Overview

	Brazil Congress has approved significant changes to the taxation of profit distributions made to non-resident investors. For the first time since 1996, withholding tax (IRRF) will apply to dividends paid or credited by Brazilian companies to foreign shareholders.
	Simultaneously, Brazil introduced a refund system (Art. 10-A) intended to protect foreign investors from excessive overall Brazilian taxation when the combination of corporate income taxes and dividend withholding surpasses the country’s nominal composite tax rate.
	These changes represent a substantial shift in Brazil’s inbound tax framework and require careful planning before year-end 2025.
	The Tax Bill has been sent for sanction by Brazil President. It is possible that further evolution on this topic might happen due to further discussions on Congress.

Key measures

New 10% WHT on Dividends Paid to Non-Residents (Art. 10, §4º)

•	Beginning with profits apportioned from 2026 onward, dividends paid, credited, delivered, or remitted to non-resident shareholders will be subject to a 10% IRRF.
•	Exceptions (full exemption): Foreign governments (subject to reciprocity); Sovereign wealth funds; and Pension funds and similar retirement benefit entities (per regulation)

Transitional Rule: Exemption for Profits Until 2025

•

Dividends relating to profits generated until Dec/2025 remain exempt from WHT, provided that:

The distribution is approved by 31 December 2025, and

Payment occurs in accordance with the terms approved (payment may occur after 2025, including via instruments such as a Note).

•	There have been informal discussions amongst tax practitioners as to whether payment should also occur in 2025, but this is apparently the outcome of a confusing structure adopted by the Tax Bill.

•

This transitional window is a critical planning opportunity for foreign investors.

•

It is worth pointing out that the approval must be carefully crafted in accordance with commercial law and internal governance (articles of association or by-laws).

Refund Mechanism for Non-Residents (Art. 10-A)

•

To prevent excessive Brazilian tax burdens, the legislation offers a refund to foreign investors when the Brazilian company’s effective tax rate (ETR) on profits, plus the 10% WHT on dividends, exceeds the combined nominal IRPJ + CSLL rate (usually 34% - except in case of financial sector where statutory rates are equal to 40% or 45%).

•

If this threshold is exceeded, the foreign shareholder may opt to receive a refund calculated as:
Refund = Dividend Amount × [ (ETR + 10%) – Nominal Composite Rate]

•

Key elements:

◦	ETR is defined under Art. 16-B of Law 9.250/95 (a statutory formula, not the accounting ETR). Thus, the proper assessment of this ETR is also fundamental.
◦	Refund requests must be submitted within 360 days following each fiscal year.
◦	Procedures and documentation will be established in upcoming regulations by the Ministry of Finance and the RFB.

Practical Implications for Multinationals

A. Year-End 2025 Planning Window

•

Brazilian subsidiaries should:

◦	Segregate profits accumulated until 2025.
◦	Approve duly and properly their distribution by 31 December 2025.
◦	Define payment terms (cash, promissory note, installments, etc) that comply with civil and commercial law requirements and with the terms and conditions approved in the corporate resolution.
◦	Keep supporting documentation for future audit defense.

•

This step ensures that such distributions remain fully exempt from the new dividend WHT.

B. Impact on Future Cash Repatriation Strategies

•

Dividend repatriation will incur 10% WHT, subject to treaty relief.

•

Groups should reassess:

◦	Holding structures.
◦	Tax-optimized repatriation strategies.
◦	Use of JCP.
◦	Capital structure (debt vs. equity).

•

This step ensures that such distributions remain fully exempt from the new dividend WHT.

C. Interaction with the Credit/Refund Mechanism

•

Foreign investors should evaluate:

◦	Whether the Brazilian subsidiary’s statutory ETR will exceed 24% (since 24% ETR + 10% WHT = 34% threshold).
◦	Forecasts of taxable income vs. book income.
◦	Sector-specific disallowances (e.g., financial expenses, provisions, regulatory adjustments).

•

Groups with ETR > 24% should anticipate refund claims and incorporate this mechanism into financial models and capital planning.

How We Can Assist

◦	Dividend repatriation planning and year-end 2025 strategies.
◦	ETR modeling under the new Art. 16-B framework.
◦	Cash repatriation simulations incorporating WHT, treaties, and expected refunds.
◦	Regulatory monitoring to anticipate RFB’s forthcoming rules on refund procedures.

Acesse outros
conteúdos de TAX:

Receba os conteúdos
em primeira mão:

For more details on how this tax reform could affect your business, reach out to KPMG Brazil Tax experts.

Privacidade & Declaração

Rua Verbo Divino, 1400, Conjunto Térreo ao 801 - Parte, Chácara Santo Antônio - CEP: 04719-911 - São Paulo, SP - Tel.: 55 (11) 3940-1500.

© 2025 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada e firma-membro da organização global KPMG de firmas-membro independentes licenciadas da KPMG International Limited, uma empresa inglesa privada de responsabilidade limitada. Todos os direitos reservados. COM251167

O nome KPMG e o seu logotipo são marcas utilizadas sob licença pelas firmas-membro independentes da organização global KPMG.