Brazil's government plans to introduce a 10% tax on corporate profits and dividends sent overseas, aiming to compensate for potential revenue losses resulting from an extended tax exemption for low-income individuals. This measure is expected to impact multinational corporations with Brazilian subsidiaries benefitting from current remittance exemptions.
The Finance Ministry has yet to comment on the proposals. The presidential palace has scheduled a presentation of the tax reform initiative for Tuesday at 11:30 a.m. in Brasilia (1430 GMT).
In 2024, profits and dividends sent abroad from Brazil totaled $69.7 billion, while inflows in the same category were $24.1 billion according to central bank data.
President Luiz Inacio da Silva's government plans to expand income tax exemptions for individuals, which is crucial for fiscal adjustments. However, specifics about the exemption and its fiscal impact remain unclear, causing investor concerns over public finances in a country where expenses are increasing.
The proposal seeks to extend income tax exemptions for individuals earning up to 5,000 reais monthly, estimating a fiscal impact of 25.84 billion reais ($4.54 billion) in 2026, 27.72 billion reais in 2027, and 29.68 billion reais in 2028.
Additionally, a new measure will impose a 10% withholding tax on corporate profits and dividends sent abroad, supplementing an earlier announced minimum effective tax rate on high-income earners. The minimum tax would rise to 10% for those earning over 1.2 million reais annually by 2026.
The proposal includes a monthly 10% withholding tax on profits and dividends exceeding 50,000 reais from a legal entity to an individual, commencing in January 2026. Taxpayers can claim refunds for any overpaid amounts when settling their annual tax obligations under the new minimum tax rules for the affluent.
Starting in 2027, taxpayers must pay the minimum tax on total annual income surpassing 600,000 reais. This will encompass all income types, including those subject to specific or final taxes, along with exempt income. Capital gains from stock exchange or over-the-counter transactions will be included, with some exceptions for other types of capital gains, as well as inheritances or gifts in advance for beneficiaries.
($1 = 5.6870 reais)