Bill that allows the Government to tax dividends starting in 2026 moves forward in the National Congress and is already being treated as a priority behind the scenes.
By Rafael Maniero and Mauricio Nucci
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Legale Overseas, no. 949.
The President of the Brazilian Chamber of Deputies, Hugo Motta, announced via social media that he will put to a vote the urgency of the bill that provides for income tax exemption for individuals earning up to R$ 5,000 and establishes minimum taxation for high-income individual taxpayers, considering annual income exceeding R$ 600,000. The taxation is scheduled to take effect in the 2026 fiscal year.
According to the proposal, the minimum rate will range from zero to 10% for taxpayers with annual income between R$ 600,000 and R$ 1.2 million. For those with annual income above R$ 1.2 million, the minimum rate will be fixed at 10%.
For the purposes of calculating annual income, exempt income, income subject to the zero rate, and income taxed exclusively will also be included, with only certain amounts being deductible, such as donations in anticipation of inheritance or estate distributions.
In this way, the Government would have leeway to tax dividends and financial investments currently exempt from income tax. The measure will have significant impacts on holding structures, including real estate and asset management companies, as well as other businesses that typically distribute dividends.
The proposal establishes that taxation on dividends may not exceed an effective rate of 34%, considering both the tax paid by the paying entity and the amount due as minimum taxation by the individual. This acts as a cap on the total tax liability borne by the taxpayer.
Furthermore, the bill provides that dividends remitted abroad will be subject to a 10% withholding tax. Here, too, the 34% cap applies, but its implementation will differ: if the effective rate exceeds 34%, the government will grant a credit to the foreign recipient.
The proposal also states that if companies decide to distribute accumulated profits from 2025, the income tax exemption will remain valid, even if payment occurs afterward. Thus, companies still have time to devise an action plan and avoid the new taxation.
Since this is still a bill, many rules, rates, and thresholds may be amended. However, what stands out is the relevance and urgency the topic has gained in Brasília, warranting close attention from those who will be affected.
The Vaz de Almeida Advogados team has extensive expertise in tax planning and is prepared to advise companies on the impacts of this proposal and assist in making strategic decisions.
Translation Disclaimer
This document was originally drafted in Portuguese and subsequently translated into English using artificial intelligence (AI).
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