The new proposal foresees conditional exemptions and imposes a Minimum Income Tax for high incomes, but raises doubts about its complexity
On March 18, Bill No. 1087/2025 was introduced, proposing the taxation of dividends. This measure had already been discussed in previous governments, with speculation regarding the applicable tax rate and a potential reduction in corporate taxation through Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
From a practical standpoint, under the proposed bill:
- Dividends remain tax-exempt unless the combined effective tax rate of IRPJ and CSLL for the distributing legal entity is lower than the nominal rate (as Article 10 of Law No. 9249/95 has not been repealed). The bill assumes the following combined nominal tax rates: 34% for legal entities in general, 40% for financial legal entities (excluding banks), and 45% for banks.
- Annual dividends paid by a single legal entity to a single individual are also not subject to taxation if they do not exceed R$ 600,000.00.
The taxation of dividends is part of the so-called high-income taxation initiative, which introduced the minimum Personal Income Tax (IRPFM) of up to 10%. Although IRPFM considers an individual's total income—including income taxed under the progressive tax table, tax-exempt income, financial income, etc.—to determine applicability and the applicable rate, the calculation mechanics effectively result in the taxation of dividends only in cases where the legal entity's effective IRPJ and CSLL rate is below 34%.
This is because tax-exempt and non-taxable income is excluded from the tax base, while other taxable income would already have been taxed at rates higher than 10%.
The IRPFM is assessed on both a monthly and an annual basis. The monthly IRPFM is applied at a fixed 10% rate on dividend payments exceeding R$ 50,000.00. At this stage, the legal entity's effective tax rate is not evaluated to determine whether withholding should occur or at what rate.
At the end of the year, the dividends received are added to the individual's other regular income to form what is referred to as "income received in the calendar year." Capital gains, accumulated income, donations, and inheritances are not included in this concept.
The applicable tax rates are as follows:
- Annual income up to R$ 600,000.00: not taxable
- Annual income between R$ 600,000.00 and R$ 1,200,000.00: 0% to 10%
- Annual income above R$ 1,200,000.00: 10%
The calculation mechanics are quite detailed and complex, but in essence, the bill appears to aim at the following:
| Application of IRPFM | IRPFM Rate | 10% IRPFM Withholding Tax | Dividends Taxed by IRPFM | Monthly Withholding Treatment | |
| Annual Income < R$ 600,000.00 | No | N/A | N/A | No | N/A |
| R$ 600,000.00 ≤ Annual Income < R$ 1,200,000.00 | Yes | 0% to 10% | Yes | (a) No, if the effective IRPJ and CSLL rate of the legal entity paying the dividends is higher than 34%. | Refund of the total amount withheld |
| (b) Yes, if the effective IRPJ and CSLL rate of the legal entity paying the dividends is lower than 34% | The final amount of IRPFM due for the year will be calculated to refund any excess withholding | ||||
| Annual Income ≥ R$ 1,200,000.00 | Yes | 10% | Yes | (a) No, if the effective IRPJ and CSLL rate of the legal entity paying the dividends is higher than 34% | Refund of the total amount withheld |
| (b) Yes, if the effective IRPJ and CSLL rate of the legal entity paying the dividends is lower than 34% | The final amount of IRPFM due for the year will be calculated to refund any excess withholding |
After nearly a month since its publication, the bill still leaves many open questions and uncertainties regarding its effectiveness, including:
- A highly complex calculation mechanism.
- The requirement for legal entities to disclose financial statements to determine the effective tax rate.
- The calculation and taxation process when an individual receives dividends from multiple legal entities.
- Mandatory withholding for legal entities whose effective tax rate matches the nominal rate (as they do not make adjustments in Lalur).
- Determination of the effective tax rate for affiliated entities and cases where an individual holds interests in multiple companies through a holding company.
- Impacts on tax benefits and corporate tax regimes.
The Bill is still under review, and as of the publication date of this report, no amendments have been proposed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
