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Summary:
- Brazil to impose a 10% tax on corporate profits and dividends sent abroad.
- High-income individuals will face a new monthly tax on dividends.
- The revenue aims to balance a larger income tax exemption for lower earners.
BRASILIA – The Brazilian government is set to introduce new tax measures, including a 10% withholding tax on corporate profits and dividends sent abroad, in an effort to compensate for revenue lost from an expanded income tax exemption for lower-income earners, two sources familiar with the matter said Monday.
The proposal, part of President Luiz Inácio Lula da Silva’s economic plan, is expected to impact multinational corporations with subsidiaries in Brazil, which have long benefited from tax exemptions on overseas remittances under a 1995 corporate income tax law.
The finance ministry has yet to comment, but the government has scheduled a formal presentation of the tax reform proposal in Brasília.
Impact of the Overseas Profits Tax
In 2024, Brazilian companies sent $69.7 billion in profits and dividends abroad, while inflows in the same category amounted to only $24.1 billion, according to central bank data. The new 10% tax on outbound remittances is expected to generate significant revenue while addressing concerns over the country’s rising debt and mandatory expenditures.
Meanwhile, the expanded income tax exemption—a key move by Lula to counter declining public support—will apply to individuals earning up to 5,000 reais per month. The government estimates the fiscal impact of this change will reach 25.84 billion reais ($4.54 billion) in 2026, 27.72 billion reais in 2027, and 29.68 billion reais in 2028. Currently, the exemption only applies to individuals earning up to 2,824 reais per month.
Taxing High Earners to Offset Revenue Losses
Alongside the corporate tax changes, the government will introduce a progressive tax on high-income individuals. Those earning over 600,000 reais annually will be subject to a minimum effective tax rate, with rates gradually increasing to 10% for those making over 1.2 million reais per year.
A key component of the plan is a 10% monthly withholding tax on profits and dividends exceeding 50,000 reais per month per individual, starting in January 2026. This tax will function as an advance payment, with taxpayers able to claim refunds when filing their annual tax returns.
By 2027, individuals earning over 600,000 reais annually will be required to pay a minimum tax on their total income, including capital gains from stock transactions and over-the-counter markets. However, exceptions will apply to certain capital gains, inheritances, and advance gifts for heirs.
What’s Next?
The proposed tax reforms aim to create a more progressive tax structure while addressing Brazil’s growing fiscal challenges. However, concerns remain about the impact on foreign investment and economic growth, as multinational corporations and wealthy individuals brace for the changes.
The government is expected to release further details following the official presentation.
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