Executive summary

On 16 December 2025, the Brazilian Federal Revenue (RFB) published a Q&A document clarifying key points raised by the 26 November 2025 enactment of Law No. 15,270/2025 (converted from Bill No. 1,087/2025), which introduced a 10% withholding tax (WHT) on dividends paid to nonresident individuals and legal entities, effective 1 January 2026. (For background, see EY Global Tax Alert, Brazilian Senate approves 10% withholding tax on dividends paid to nonresident shareholders and Individual Income Tax changes, dated 6 November 2025)

The Law provides that WHT does not apply to profits accrued through 2025, if the distribution is approved by 31 December 2025 and payment follows the original approval terms.

The Law also exempts dividends paid to: (i) foreign governments, (ii) sovereign funds, and (iii) foreign entities that manage social security benefits (e.g., pensions) as their main activity.

Several questions arose regarding the applicability of these exemptions, as well as other key topics that needed to take place before year-end.

In the absence of regulations detailing application of all provisions of the Law (which also deals with taxation of individuals), and to address the more urgent matters, the RFB published the Q&A document ahead of the new rules taking effect. Key clarifications from the Q&A, in relation to taxation of dividends paid to nonresidents, are outlined below.

Key clarifications from the Q&A

Dividends paid to residents in tax havens: The 10% rate applies uniformly, including payments to beneficiaries in tax havens (jurisdictions with no income tax or rates below 17%). There is no aggravated rate, unlike certain other payments subject to 25% WHT.

Exemption for dividends declared in 2025: The Q&A states that the exemption for profits accrued through 31 December 2025 requires: (i) approval by or before 31 December 2025; (ii) payment according to the original approval terms; and (iii) payment by 2028. These additional conditions — particularly the 2028 deadline — may raise legal debate, as they could conflict with constitutional principles of anteriority and non-retroactivity. The Q&A also appears to apply rules designed for Brazilian residents to nonresidents (such as the payment limit of 2028), creating potential inconsistencies.

Exemption for dividends paid to foreign governments, sovereign funds and foreign entities managing social security benefits: These dividends are exempt from WHT regardless of when profits were accrued. The exemption extends to entities or legal arrangements directly or indirectly held by these beneficiaries. The Q&A confirms social security entities may take the form of legal entities or other arrangements, including investment funds, under applicable foreign law.

Capitalization of profits before 31 December 2025: Profits accrued through 2025 and capitalized by that date are not subject to WHT. Future repatriation via capital reduction will follow capital gains rules (tax applies if redeemed capital exceeds acquisition cost). The Q&A confirms no minimum holding period is required for capitalized profits.

Capitalization of profits after 31 December 2025: Capitalizing profits after 2025 is considered a distribution of profits (as per the terms used in Brazilian tax legislation, the profits would be "employed" for the issuance of shares, and employment is one of the triggering events for WHT). Accordingly, such capitalizations trigger the 10% WHT. The Q&A does not address Art. 63 of Decree-Law No. 1,598/1977, which historically (under Brazil's pre-1996 dividend taxation regime) exempted capitalizations unless preceded or followed by capital reductions within five years — suggesting RFB views this provision as obsolete.

Operational details: WHT must be collected on the date of payment, credit, employment or remittance of the dividend, using code 1841 in the tax collection document (DARF).

Conclusion and next steps

The RFB's Q&A provides welcome clarity on the taxation of dividends paid to nonresidents and transitional rules before 1 January 2026. However, certain technical and transitional aspects may warrant further legal review by a qualified advisor. Taxpayers should reassess their positions, evaluate the impact on repatriation strategies, and monitor for additional guidance.