Arthur Mendes Lobo and Ricardo Alegransi
Analysis of dividend taxation in Brazil, addressing its history, proposed legislation, economic impacts, and the DDL (Dividend Tax Law), highlighting technical and political challenges to fiscal balance and tax justice.
Monday, November 24, 2025
Introduction
The taxation of dividends in Brazil has been the subject of intense academic and legislative debate. Since the enactment of Law 9.249/1995, which exempted distributed profits and dividends from income tax, several proposals have sought to reverse this exemption, aiming for greater fiscal equity.
Almost thirty years after the exemption was imposed, there have been numerous attempts to reinstate taxation on profits and dividends, but no act or regulation has effectively fulfilled this promise.
One of the main arguments in favor of resuming taxation on profits and dividends is the claim that Brazil stands as an exception in the international arena, being one of the few countries that completely exempts the distribution of profits from legal entities to partners and shareholders.
However, this comparison often disregards the structural specificities of the Brazilian tax system, notably its collection model centered on consumption rather than income. Among the member countries of the OECD – Organisation for Economic Co-operation and Development – most adopt the taxation of dividends, but do so within an arrangement that considers the total level of corporate taxation and offers mechanisms for partial integration between legal entities and individuals, in order to avoid full double taxation on the same economic base.
It is necessary to recognize that Brazil has a considerably more regressive tax structure than the OECD average. Data from the organization itself indicate that, while OECD countries collect an average of 32.3% of their total tax burden on consumption (2022 value), in Brazil this percentage is significantly higher, reaching approximately 49% to 52%, according to data from the Federal Revenue Service and studies by the Secretariat for Tax Reform.
This difference demonstrates that, unlike developed economies, taxation in Brazil falls disproportionately on the consumption of goods and services, affecting lower-income taxpayers more intensely.
On the other hand, with regard to income taxation, OECD countries achieve an average combined tax burden of 41.9% on corporate profits distributed to shareholders, considering both corporate tax and personal income tax on dividends.
In Brazil, the effective tax burden on profits is concentrated exclusively at the corporate level, with a combined rate of 34% (25% of IRPJ + 9% of CSLL), with no additional tax levied on dividends paid.
This structure was designed to avoid double taxation and encourage the reinvestment of capital in companies, which is lost if taxation on dividends is reintroduced without an equivalent reduction in corporate taxation.
In fact, there is a discrepancy between the international standard and our fiscal reality. Despite having the consumption tax reform progressing in the National Congress, with the transition period scheduled to begin in January 2026 and expected to conclude only in 2032.
Brazil has a characteristic that few other countries possess, which is the use of independent contractors by companies, a model that gained greater relevance after the labor reform carried out in 2017.
Brazil in the OECD
Brazil's formal application for membership in the OECD – Organisation for Economic Co-operation and Development – was submitted in 2017, during the government of Michel Temer.
This initiative aimed to consolidate the country's integration into the major global economies, seeking greater institutional predictability, attracting foreign investment, and improving public policies through the adoption of international standards of governance and transparency.
The process of rapprochement with the OECD, however, dates back to the 1990s, when Brazil began participating in various committees of the organization and, in 1994, joined the OECD Development Centre.
Joining the OECD requires that a candidate country align its laws, policies, and practices with a series of standards and recommendations established by the organization. For Brazil, this implies significant adjustments in areas such as regulatory governance, combating corruption, fiscal transparency, environmental protection, and competition policies.
For example, there is a need to reform transfer pricing rules to bring them into line with OECD standards, as established in Provisional Measure 1,152 of December 28, 2022.
Furthermore, Brazil has sought to improve its regulatory framework through the implementation of good regulatory practices policies, such as Regulatory Impact Analysis (RIA), and the review and consolidation of normative acts, as provided for in Decree 10.139/19. These measures aim to increase efficiency and transparency in the drafting of regulations, aligning the country with OECD requirements.
The last Latin American country to become a member of the OECD was Costa Rica, which officially joined on May 25, 2021.
Costa Rica's accession process involved a series of structural reforms, including modernizing the tax system, strengthening anti-corruption policies, improving corporate governance, and implementing sustainable environmental policies.
These measures were fundamental in aligning the country with the standards required by the OECD and demonstrate Costa Rica's commitment to the continuous improvement of its public policies.
Costa Rica's experience serves as a benchmark for Brazil, highlighting the importance of a firm commitment to structural reforms and the adoption of international best practices.
For Brazil, joining the OECD represents an opportunity to consolidate its position on the international stage, promote sustainable development, and improve the quality of public policies for the benefit of society.
Based on this scenario and these concepts, we will explore the reasons and consequences of Brazil (still) not taxing dividends, as well as the main draft laws that have advanced in the National Congress.
Taxation on dividends: History of dividend exemption
The taxation of profits and dividends in Brazil dates back to the beginning of the 20th century. With Law 4,625 of 1922, income began to be taxed through specific forms. This model lasted until the 1980s, when reforms were implemented that culminated in the unification of the income tax calculation bases.
The enactment of Law 9,249, of December 26, 1995, marked a turning point in Brazilian tax policy by establishing an exemption from Income Tax on profits and dividends distributed by legal entities starting in January 1996.
This measure aimed to avoid double taxation, since profits were already taxed at the corporate level.
The implementation of the Real Plan in 1994 was a milestone in the economic stabilization of Brazil, putting an end to decades of hyperinflation. The plan involved the creation of a new currency, the real, and the adoption of strict fiscal and monetary policies to control inflation.
The economic stability provided by the Real Plan created a favorable environment for structural reforms, including market liberalization and state modernization.
In this context of reforms, Brazil began a process of commercial and financial liberalization, reducing tariff barriers and encouraging the entry of foreign investment.
The opening of the market aimed to increase the competitiveness of the Brazilian economy and integrate it into the global market. Furthermore, the country began to adopt policies of deregulation and privatization of state-owned companies, seeking to increase efficiency and reduce the role of the State in the economy.
Simultaneously, the Brazilian government implemented the creation of independent regulatory agencies to oversee strategic sectors of the economy, such as energy, telecommunications, and healthcare.
These agencies were established with the goal of ensuring the quality of services, promoting competition, and protecting consumer interests. The structuring of these entities represented a significant shift in the role of the State, which went from being a direct service provider to a regulator and supervisor.
The combination of these measures – dividend exemption, economic stabilization, market opening, and the creation of regulatory agencies – formed part of a broader strategy to modernize the Brazilian state in the 1990s.
These actions aimed to create a more stable, competitive, and efficient economic environment, aligning Brazil with international practices and promoting sustainable development.
Attempts to reinstate taxation
Since the enactment of Law 9.249/1995, several legislative proposals have sought to reintroduce taxation on profits and dividends. Between 2007 and 2018, 28 bills were presented with this objective, a number that exceeded 40 in the following two years.
The main motivations for these proposals include:
Fiscal equity: Correcting the regressiveness of the tax system;
Increased revenue: Expanding public revenues without raising the tax burden on consumption;
International alignment: Adapting Brazil to the tax practices of OECD countries.
Despite attempts, none of the proposals have been approved so far, partly due to resistance from business sectors and the complexity of tax reform.
Main draft bills on the topic.
1. PL 2.337/21
Presented by the Executive Branch, Bill 2.337/21 proposes the taxation of profits and dividends distributed to individuals, with a rate of 20%, exempting amounts received by micro and small businesses opting for the Simples Nacional (Simplified National Tax Regime).
2. PL 307/21
Authored by Representative José Nelto (Pode-GO), Bill 307/21 establishes the collection of Income Tax, at a rate of 10%, on profits and dividends distributed by companies to individuals or legal entities, excluding those opting for the Simples Nacional (Simplified National Tax Regime). (Source: Chamber of Deputies website)
3. PLP 1.087/25
Recently, the federal government presented PLP 1.087/25, which proposes taxing dividends at a rate of 10% for monthly incomes exceeding R$ 50 thousand, in addition to establishing a minimum tax for high-income individuals.
From the analysis of the IMF – International Monetary Fund on the subject.
The article “Fiscal Financing and Investment Irreversibility: The Role of Dividend Taxation,” published by the IMF, analyzed the macroeconomic effects, as well as the impacts on asset prices and public debt, of fiscal policies based on increasing the tax on dividends, with particular attention to the impacts of the partial irreversibility of investments.
IMF research demonstrates that even taxes representing a small fraction of total revenue can play a strategic role in fiscal stabilization, especially when applied countercyclically and linked to fiscal rules for correcting the debt trajectory.
Brazil faces a scenario of high public debt, with budgetary rigidity resulting from mandatory spending and a tax base highly concentrated on consumption.
In this context, the reintroduction of dividend taxation – as has been proposed in successive legislative projects – could be a viable alternative to raising taxes on production or corporate income.
In light of the model proposed by Ghilardi and Zilberman, taxation on dividends would have the potential to generate less short-term allocative distortion and contribute to a more robust recovery of investment in the medium term, provided it is carefully designed to minimize impacts on asset prices and investors' return expectations.
Furthermore, the study reinforces that the efficiency of dividend taxation depends on the existence of frictions to investment, which is especially relevant in emerging countries like Brazil, where the cost of capital is high and companies face greater difficulty in adjusting their capital structure in the face of macroeconomic shocks.
Adopting mechanisms for taxing dividends, with rules of progressivity and coordination with the taxation of personal income, can contribute to fiscal balance and tax fairness without significantly compromising productive activity.
Given the need to align with international standards, including in the process of joining the OECD, Brazil finds in the analyzed model a technical justification to revise its dividend exemption policy, based on criteria of sustainability, efficiency, and equity.
Dividends and the renewed spotlight on DDL – Disguised Profit Distribution
There is a potential revival of the nearly extinct tax concept known as DDL – Disguised Profit Distribution, a legal figure provided for in the Brazilian tax system to identify situations in which legal entities carry out transactions with their partners, shareholders or related parties in order to indirectly transfer economic advantages equivalent to profit distribution, but without the due withholding of IRRF – Income Tax Withheld at Source.
This is a mechanism to protect the tax base, used by the tax authorities to prevent profits, instead of being distributed in the form of dividends – which are generally tax-exempt – from being transferred through fraudulent means, such as uninterest-free loans, payments for non-existent services, or the sale of assets at prices that are clearly below market value.
The legal basis for the DDL is found primarily in Article 60 of IN SRF 1.700/17 (which consolidates previous rules such as IN SRF 243/02) and in Article 466 of the Income Tax Regulations (RIR/18), approved by Decree 9.580/18, which reproduces the content of Article 74 of Provisional Measure 2.158-35/01.
These provisions list specific scenarios in which the tax authorities may presume the existence of disproportionately low profits, such as: loans to partners without a remuneration clause; payment of remuneration for fictitious services; acquisition or disposal of assets at prices that are not compatible with market prices; and any other transaction that represents an unusual or undue economic advantage for the partners.
In terms of case law and administrative practice, the issue of DDL (Deductible Deductions) is recurrent in the CARF (Administrative Council of Tax Appeals), mainly in cases involving the requalification of deductible expenses, transfer pricing adjustments, and assessments for omitted revenue.
Case law oscillates between an objective application of presumed legal hypotheses and an analysis of the economic background of the transactions – especially when there is formal documentation suggesting regularity.
For example, transactions between related parties with prices that diverge from the market, even if formally justified, have often been disregarded when the tax authorities demonstrate that they resulted in direct benefits to the partners or controlling shareholders without proper taxation.
Higher courts, in turn, have reinforced the understanding that the form of a transaction cannot prevail over its substance, recognizing the legitimacy of the Federal Revenue Service's actions in disregarding simulated transactions or those with an essentially tax-related purpose (principle of economic reality).
In this new context, the risk of reclassifying operations from the perspective of dividend tax increases, as taxpayers may seek alternatives to mitigate the fiscal impact of the new tax burden on dividends.
This expectation reinforces the role of the Brazilian Federal Revenue Service in identifying corporate, contractual, or accounting acts that conceal disguised profit distributions, using legal mechanisms such as disregarding simulated acts (article 116, sole paragraph, of the CTN), applying the presumed hypotheses provided for in article 466 of the RIR/18, as well as using indirect methods for determining taxable income and arbitrating the taxable base (articles 831 to 853 of the RIR/18).
Tax enforcement based on the DDL (Differential Liability for Business) should also consider the corporate governance structure of companies, contracts signed with related parties, and accounting documentation supporting operations.
Instruments such as loan agreements, service contracts, leases, assignments of use, and asset transfers will be examined from the perspective of economic reasonableness, market value, and effective consideration.
In line with OECD guidelines and the jurisprudence of higher courts, tax authorities tend to apply the principle of substance over form, disregarding the legal transaction whenever a deviation from purpose or an exclusively fiscal purpose is evident.
The relevance of dividend tax is likely to intensify with the possible reinstatement of dividend taxation in Brazil, as proposed in tax reform projects.
This is because, in a scenario of withholding tax on distributed profits, there may be a greater incentive to seek alternative ways of transferring funds to shareholders, which, in turn, would expand the use of the DDL (Distributed Profit Sharing) mechanism as an instrument to combat undue tax avoidance.
In this regard, it is expected that the Federal Revenue Service will strengthen its oversight and objective criteria for presuming the existence of DDL (Discretionary Financial Transactions), making accounting governance, transparency in corporate documentation, and the alignment of transactions with related parties with market practices even more relevant.
Final Considerations
The discussion about resuming taxation on dividends in Brazil requires deep technical reflection and a commitment to the constitutional principles governing the national tax system, especially non-cumulative taxation, ability to pay, and the prohibition of double taxation.
Contrary to what is often argued in simplistic speeches, the current exemption of dividends, established by Law 9.249/1995, does not represent a tax privilege, but a measure aimed at avoiding double taxation of the same economic base – corporate income, already fully taxed at the corporate level via Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
It cannot be overlooked that dividend taxation, if poorly designed, has the potential to introduce systemic imbalances, negatively impacting the business environment, investment attractiveness, and the formalization of the economy. The absence of integration mechanisms between corporate and individual taxation, as occurs, for example, in several OECD countries through imputation systems or tax credits, transforms the reintroduction of dividend taxation into a true double taxation, with strong confiscatory potential.
This problem is exacerbated when one considers that, in the Brazilian model, the taxable base for legal entities is already broadened by a series of tax additions and legal presumptions that deviate significantly from accounting profit. Furthermore, the system for calculating actual profit imposes operational complexity and a high degree of litigation, such that the superimposition of an additional tax at the distribution stage, without any compensatory modulation, violates the principle of tax reasonableness and discourages reinvestment. The result can be increased equity costs, an incentive for artificial leverage, and the erosion of the competitiveness of Brazilian companies in the global market.
Along these lines, any reform must be accompanied by a re-engineering of the income tax system, which simultaneously considers reducing the tax burden at the corporate level, adopting simplified regimes for small entrepreneurs, and preserving fiscal neutrality. Taxing dividends is not, in itself, a mistake. The mistake lies in doing so in a disjointed manner, ignoring the structural pillars of the system and the collateral effects that this choice may produce. The challenge, therefore, is not only legal, but essentially political and technical: to design a model that is sustainable, equitable, and functional, without compromising the already fragile foundations of legal certainty and confidence in the regulatory environment.
From this perspective, simply reintroducing the tax on distributed profits, without an equivalent reduction in the corporate tax burden, could constitute disguised double taxation, violating the principle of neutrality and compromising the system's coherence.
Furthermore, comparative experience demonstrates that excessive taxation of corporate profits combined with distribution can create incentives for tax avoidance, exacerbating the complexity of the system and encouraging the creation of artificial structures.
In this context, the risk of increased use of DDL – Disguised Profit Distribution – as a response by taxpayers to avoid increased tax burden stands out, generating legal uncertainty and litigation in tax disputes.
Another relevant and often overlooked impact in legislative debates is the effect of dividend taxation on so-called "pejotização" (the practice of hiring individuals as independent contractors rather than employees). Thousands of self-employed professionals and skilled workers operate as legal entities for reasons of economic survival or to enable their entry into the labor market given the rigidity of labor laws and high payroll taxes.
Imposing a new tax burden on the dividends of these legal entities – often composed of a single professional – represents an unfair penalty to this livelihood model, with the risk of informalization or evasion as inevitable behavioral responses.
Therefore, the proposed taxation of dividends should not be treated as an isolated or merely revenue-raising measure, but rather as part of a coherent structural reform that respects the logic of income taxation and the constitutional limits of non-confiscation, proportionality, and ability to pay.
Resuming taxation on dividends without adequately restructuring the tax rates leads us back to the same impasse faced in 1995, when the need for a more rational and efficient system to stimulate productive investment was recognized.
Ignoring these fundamentals could compromise the goals of fiscal justice and economic stability, leading to institutional setbacks instead of progress in the Brazilian tax system.
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