Interest on partner loans is taxable as income and subject to withholding income tax when paid to foreign partners (at a general rate of 15%, or 25% if the beneficiary is located in a low-tax jurisdiction). In addition, such payments are subject to thin capitalization and transfer pricing rules. The deductibility of interest by the Brazilian company also depends on compliance with general rules regarding the necessity of the expense, thin capitalization, and transfer pricing.
Under the current rules, dividends distributed by Brazilian companies are exempt from withholding income tax. However, Bill No. 1,087/2025, recently approved and expected to come into effect in January 2026, introduces significant changes.
Dividends and profits distributed to Brazilian individuals in amounts exceeding BRL 50,000 per month by the same entity will be subject to a 10% withholding income tax. The same 10% rate will apply to dividends remitted abroad. For both cases, profits earned up to the 2025 calendar year, whose distribution has been approved by December 31, 2025, will not be subject to monthly withholding income tax, provided that payment occurs in accordance with the original approval terms.
Additionally, the bill establishes a minimum annual tax for individuals with total income exceeding BRL 600,000 per year, with rates ranging up to 10%. Remain exempt under the current rules dividends related to profits accrued up to the 2025 fiscal year, provided their distribution is approved by December 31, 2025, and payment occurs by 2028 under the approved terms.
To mitigate the effect of double taxation, the bill introduces a specific reducer mechanism to balance the corporate income taxes already paid (IRPJ and CSLL) and the amounts required from individuals under the new high-income minimum taxation rules, ensuring that the overall tax burden remains aligned with the combined corporate and shareholder-level taxation standards.
The remittance of dividends abroad is subject to the IOF-Exchange tax at a zero percent rate.
Regarding the IOF-Exchange on external loans, a zero percent rate applies both on the inflow and outflow of funds when the repayment term of the loan exceeds 364 days.
For short-term loans (with a repayment term of 364 days or less), the IOF-Exchange is levied at a 3.5% rate on the amount inflowed into Brazil as a loan. The repayment of the principal and interest is currently subject to a zero percent rate regardless of the repayment term of the loan. In case the IOF rate is increased up before the repayment date, the new rate may apply to the remittance for the repayment of the loan and corresponding interest.
It is important to note that IOF rates may change at any time, depending on the fiscal and monetary policy of the Federal Government.
