Tax insight

Brazil introduces new dividend withholding income tax

Insight
5 minute read
November 19, 2025

What happened?

On November 5, 2025, the Federal Senate unanimously approved Project of Law (PL) No. 1,087/2025, which introduces significant changes to personal income taxes and the reintroduction of a dividend withholding income tax (WHT) for non-residents investing in Brazil, effective from January 1, 2026. The bill was introduced earlier in the year by the Executive Branch (see Tax Intelligence (TI) No. 45), and recently approved by the House of Representatives (TI Express No. 47). The text unanimously approved by the House was approved in the Senate without any substantive changes, and with only a few amendments to the wording of certain provisions. The approved bill will now proceed to the President of the Republic for sanction, which is expected to occur shortly.

Why is it relevant? 

With the new levy, Brazil’s nominal tax rate on fully repatriated business profits earned by multinational firms would increase from the general rate of 34% (or 40%-45% in financial services) to 40.6% (or 46%-50.5% in financial services). Considering Brazil’s limited tax treaty network, and that Brazil’s treaties would not limit the new levy, the new WHT makes Brazil’s tax rate on fully repatriated profits the highest in the world for most foreign direct investment (FDI) and most multinationals.

Actions to consider

Given the importance of the matter to the Federal Government and the unanimous approval of the bill in both houses of the Legislative Branch, it is expected that PL 1,087/2025 will soon be enacted into law. The new rule requires immediate year-end action -- the authorization or declaration of dividends for earnings retained through December 31, 2025. The new system also prompts all multinationals to revisit their capital structures in Brazil and consider refinancing, as well as their business models and value chains, to mitigate the adverse impacts to FDI in Brazil stemming from the new levy.