Brazilian Federal Revenue Service Guidance on High-Income Taxation and Dividend Withholding.

The Brazilian Federal Revenue Service has released the document entitled “Questions and Answers: High-Income Taxation”, the purpose of which is to provide interpretative guidance on certain aspects of the recently enacted legislation applicable to taxpayers with high levels of income.

The document places particular emphasis on the tax treatment of dividends, setting forth, in descriptive terms, the application of a 10% tax rate, the transitional rules applicable to profits accrued up to fiscal year 2025, and the characterization of profit capitalization as a taxable event. The analysis is primarily focused on the incidence of withholding tax at source.

However, the guidance is limited in scope to the monthly withholding framework and does not address, in detail, the mechanics of the annual minimum tax regime. Under the applicable legislation, this regime is based on a comparison between the tax effectively paid by the taxpayer and the minimum tax burden required for annual income exceeding BRL 600,000. The document does not elaborate on the definition of the effective tax burden, the methodology for its calculation, the manner in which corporate income tax already paid may be taken into account, nor the procedures for informing taxpayers of such calculations.

As a result, the published material outlines the rules governing dividend withholding but does not provide operational guidance regarding the annual adjustment to be made in the individual income tax return, nor does it address the coordination between individual taxation and Corporate Income Tax (IRPJ).

For record-keeping and clarification purposes, the document expressly provides, in summary, that:

• Dividends distributed to resident individuals are subject to withholding tax at a rate of 10% when, within a given month, the total amount distributed by the same legal entity exceeds BRL 50,000.

  
  

• Legal entities taxed under the Simples Nacional regime are likewise subject to such withholding, provided the same thresholds are met.

  
  

• Profits accrued up to fiscal year 2025 may be excluded from withholding tax and from the minimum tax regime, provided that the distribution is formally approved by December 31, 2025, and that payment is carried out in accordance with the statutory schedule extending through 2028.

  
  

• The approval of profit distributions must be formally resolved by the competent corporate body and duly recorded in the entity’s accounting records as a liability.

  
  

• The capitalization of profits is treated as a form of profit utilization and is therefore considered for purposes of withholding tax and the minimum tax regime, except where it relates to profits accrued and approved for distribution up to fiscal year 2025.

  
  

• Dividends paid to non-resident recipients are subject to taxation at a rate of 10%, except in cases involving foreign governments, sovereign wealth funds, and foreign pension or retirement entities.

  
  

In summary, the guidance issued by the Brazilian Federal Revenue Service consolidates the rules applicable to the withholding taxation of dividends, while leaving unresolved key issues concerning the operation of the annual minimum tax regime and its interaction with corporate-level taxation.

Disclaimer

This material is intended solely for individuals who are Brazilian tax residents and for investors who have tax obligations in Brazil. The information contained herein is provided for general informational purposes only and does not constitute legal, tax, or investment advice. The applicability of the rules discussed may vary depending on the specific facts and circumstances of each taxpayer. Readers are advised to seek professional advice tailored to their individual situation before taking any action based on the content of this material.