Since January 2026, Brazil has imposed a 10% withholding tax on dividends paid to foreign shareholders. However, depending on the distributing company’s effective corporate tax rate, foreign investors may be entitled to recover part or all of the tax withheld.
1. The new 10% withholding tax on dividends
As of January 1, 2026, profits and dividends paid, credited, or remitted by Brazilian companies to shareholders residing abroad are subject to a 10% withholding income tax (WHT).
The rule was introduced into Article 10, §4, of Law No. 9,249/1995.
However, Brazilian legislation provides a mechanism that may allow foreign shareholders to recover part or all of the withholding tax.
2. When can foreign shareholders recover the withholding tax?
Article 10-A of Law No. 9,249/1995 establishes a tax credit mechanism intended to limit the combined taxation of corporate profits and dividends.
For most Brazilian companies, the combined nominal corporate income tax rate (IRPJ and CSLL) is 34%. Higher rates of 40% or 45% apply to certain financial institutions.
Under this mechanism, the effective IRPJ and CSLL rate paid by the distributing company is added to the 10% withholding tax on dividends.
If the combined rate exceeds the applicable nominal corporate income tax rate, the excess may be recovered by the foreign shareholder.
For companies subject to the standard 34% rate, the calculation is:
Recoverable credit = Dividends × [(Company’s effective IRPJ/CSLL rate + 10%) − 34%]
The credit is limited to the withholding tax originally collected.
Therefore, if the distributing company’s effective corporate income tax rate is 24% or lower, no credit is available.
Conversely, if its effective rate reaches 34%, the entire 10% withholding tax may be recovered.
Practical example
Consider a Brazilian company distributing BRL 1 million in dividends to a foreign shareholder.
The withholding tax will initially amount to BRL 100,000, regardless of the company’s effective corporate tax rate.
However, the recoverable amount will vary:
| Effective corporate tax rate | Initial WHT (10%) | Recoverable credit | Final WHT burden |
|---|---|---|---|
| 20% | BRL 100,000 | BRL 0 | BRL 100,000 |
| 24% | BRL 100,000 | BRL 0 | BRL 100,000 |
| 26% | BRL 100,000 | BRL 20,000 | BRL 80,000 |
| 28% | BRL 100,000 | BRL 40,000 | BRL 60,000 |
| 30% | BRL 100,000 | BRL 60,000 | BRL 40,000 |
| 32% | BRL 100,000 | BRL 80,000 | BRL 20,000 |
| 34% | BRL 100,000 | BRL 100,000 | BRL 0 |
The key factor is not the amount of dividends received, but the effective corporate income tax rate borne by the Brazilian company distributing them.
Accordingly, foreign shareholders receiving identical dividend amounts from different Brazilian companies may be entitled to substantially different refunds.
3. Deadline and exemptions
The credit must be claimed within 360 days from the end of the relevant fiscal year.
Brazilian legislation also provides exceptions to the withholding tax, including distributions to:
- Foreign governments granting reciprocal treatment to Brazil;
- Sovereign wealth funds;
- Qualifying foreign pension entities.
In addition, the transitional rules preserve the exemption for profits earned through 2025, provided their distribution was approved by December 31, 2025, in accordance with the applicable legal requirements.
4. What documents are required to assess a potential refund?
Determining whether a foreign shareholder is entitled to a credit requires an analysis of the distributing company’s effective IRPJ and CSLL burden.
The main documents and information include:
Regarding the Brazilian company:
- Applicable corporate income tax regime and business activity;
- Financial statements, including the balance sheet and income statement;
- Digital accounting and corporate income tax filings (ECD and ECF);
- Evidence of IRPJ and CSLL payments;
- Information on tax incentives, tax loss offsets, and other benefits affecting the effective tax rate.
Regarding the dividend distribution:
- Corporate resolutions approving the distribution;
- Identification of the fiscal year in which the profits were earned;
- Evidence of dividend payments or remittances;
- Withholding tax payment records and corresponding tax filings;
- Information on any interest on net equity (JCP) paid during the period.
Regarding the foreign shareholder:
- Identification and country of tax residence;
- Legal nature of the shareholder;
- Ownership percentage in the Brazilian company;
- Foreign investment registration with the Central Bank of Brazil (SCE-IED).
These documents allow the effective corporate tax rate to be calculated and the potential recoverable credit to be determined.
5. What happens when the shareholder resides in a tax treaty country?
Brazil has entered into double taxation treaties with several countries.
For shareholders residing in treaty jurisdictions, the 10% withholding tax generally remains applicable, since most Brazilian treaties allow source taxation of dividends at rates of up to 10% or 15%.
A lower withholding rate may apply where the relevant treaty establishes a ceiling below 10%, subject to the applicable requirements, including proof of tax residence and beneficial ownership.
The treaty may also affect how dividends are taxed in the shareholder’s country of residence.
Depending on the treaty, that country may grant a foreign tax credit for Brazilian withholding tax or exempt the dividends from taxation.
Consequently, any refund obtained in Brazil should be assessed together with the shareholder’s tax treatment in their country of residence.
A refund of Brazilian withholding tax may reduce the foreign tax credit available abroad.
For treaty residents, the analysis should therefore also include the applicable tax residence certificate and information regarding the taxation of dividends in the shareholder’s jurisdiction.
6. Implications for foreign investors
The introduction of a 10% withholding tax represents a significant change in Brazil’s taxation of dividends distributed to non-residents.
However, the effective economic impact will depend on the corporate income tax burden borne by the distributing company and, where applicable, the provisions of the relevant double taxation treaty.
Foreign shareholders should not assume that the 10% withholding tax necessarily represents their final Brazilian tax burden.
By examining the distributing company’s effective IRPJ and CSLL rate, investors can determine whether they are entitled to recover part or all of the tax withheld under Article 10-A of Law No. 9,249/1995.