Payment of Dividends: Changes in Taxation.
By Edmo Colnaghi Neves (PhD).
The taxation of dividend payments is about to change. Currently, dividend distributions are exempt from income tax; however, earlier this month (October 2025), the Brazilian House of Representatives approved a bill that introduces taxation on such payments.
This change may significantly impact foreign capital invested in Brazil.
Brazil adopts a bicameral legislative system; therefore, the bill must also be approved by the Federal Senate.
Under the constitutional principle of anterioridade (non-retroactivity and prior notice of tax laws), in order for the new rules to take effect in 2026, the bill must be approved by both Houses of Congress and sanctioned by the President of the Republic by December 31, 2025.
The proposed legislation is part of the same bill that establishes income tax exemption for individuals earning up to BRL 5,000.00 per month, among several other measures, and has therefore drawn the attention of the entire nation at the close of this year.
According to the bill, as of 2026, dividend payments made by the same legal entity to the same individual in any given month exceeding BRL 50,000.00 will be subject to a 10% withholding tax at source. The tax will also apply when the total annual amount of such income — including dividends, interest, and rental income — exceeds BRL 600,000.00.
This represents a major shift in the Brazilian tax framework, which is expected to be approved by Congress and to take effect as of 2026. It will require affected parties to gain an in-depth understanding of the proposed changes, consider alternative provisions of the bill, and engage in careful tax, corporate, and estate planning.
October 2025