Doing Business in Brazil


Dividends are withholding income tax free regardless if paid to a tax treaty country or tax haven jurisdiction or not. The Brazilian Central Bank shall allow distribution to the non-resident shareholder to the extent that the foreign investment was properly registered in the Bacen RDE-IED system. Notwithstanding, corporate law allows Brazilian companies to distribute interim dividends, i.e., anticipation of year-ended dividend capacity, as long as the company's articles of incorporation have a specific provision authorizing the payment of interim dividend and the company is in a sufficient dividend capacity (retained earnings) upon the interim dividend distribution.

As established by Law 12,973/2014, from calendar year 2015 onwards, dividends shall be determined based on the IRFS accounting standards.

Capital reduction

There are generally no major limitations established by Brazilian legislation on the amount of capital that can be reduced or repatriated. It is possible to reduce capital against accumulated losses, as well as to repatriate capital, but in such case, the capital repatriation is limited to existing accumulated losses. In any case, the Brazilian company should follow certain legal procedures, such as: mandatory publication of the minute of meetings that deliberate the capital reduction, provide the debt clearance certificate by the Brazilian social security institute (INSS) specifically for this purpose and debt clearance certificates.

In addition, ninety (90) days shall be given to third parties to oppose the reduction by a Brazilian company in the form of a Limitada (LLC). After the 90-day period, the minutes of the meeting and the respective amendment to the Brazilian company's article of incorporation shall be filed with the State Board of Trade. For corporations (S.As) a 60-day period applies.

The capital repatriation should be not be subject to Brazilian withholding capital gain tax to the extent it does not exceed the foreign paid-in capital registered with the Brazilian Central Bank in foreign currency, proportionally to the amount repatriate. Otherwise, the exceeding amount should be subject to a 15% withholding capital gain tax (25% in case of residents of low tax jurisdictions).


In general, outbound interest payments or credits, whichever taxable event occurs first, are subject to a 15% withholding income tax (25% in case of residents of tax haven jurisdictions). The term "credit" for withholding income tax triggering purposes shall be construed as to when the outbound interest payable becomes legally claimable (e.g. maturity) under the terms and conditions of the respective loan agreement.

Debt infusions into Brazilian companies are generally used to finance the working capital, as well as to stripe out income or to cash out trapped cash when the Brazilian company is not in a dividend capacity.

Interest on net equity

Under the Brazilian tax law, a Brazilian company is generally allowed to make interest on equity payments to their quota holders (legal entities or individuals) based on the application of the public long-term interest rate TJLP to the Brazilian company's net equity, but limited to 50% of the retained earning account plus profit reserves or 50% of current P&L before corporate income taxes.

The interest on equity distributions are deductible for corporate income taxes purposes, provided the limitations above are observed, but subject to a 15% withholding income tax (25% in case of beneficiaries resident in a low tax jurisdictions).

In general, the tax arbitrage on interest on equity distribution should be 19%, i.e., 34% corporate income tax saving minus a 15% withholding income tax.

The Brazilian government published Provisional Measure 694/2015 (PM 694/2015) on 30 September, introducing certain changes to interest on net equity (INE) payments.

The PM increases the withholding tax rate on INE payments from 15% to 18% and sets a cap deduction at 5%, if the TJLP is higher than 5%. The changes will become effective on 1 January 2017 if the Brazilian Congress converts PM 694 into law during calendar year 2016.

Royalties and technical services/technical assistance

Royalty and technical assistance payments to non-residents are generally subject to a 15% withholding tax. The rate is increased to 25% if the recipient is resident in a jurisdiction that is deemed to be a low tax jurisdiction. Other withholding and indirect taxes may apply to royalty payments. INPI registration applies when technology is transferred.

Reductions and exemption of withholding income tax may apply to payments abroad related to technical services and technical assistance, in the context of a double tax treaty.


The structuring of deals must be carefully analyzed due to the complexity of the Brazilian tax environment, as well as the recent changes in the corporate rules with the introduction of the IFRS guidelines and recent changes in the tax law introduced by Law 12.973/2014.

Typically, neither asset nor equity deals are favored, although share deals typically are preferred given the ability to amortize goodwill of the shares acquired for tax purposes (if structured properly). In a share deal, the acquisition vehicle typically is located onshore to allow the amortization of goodwill for tax purposes. The triggering event for the amortization of goodwill occurs after a domestic merger takes place, since tax consolidation rules are not available.


Considered part of the fiscal adjustment proposed by Government and recently approved by Congress, Law No. 13,254, establishing the Special Regime for the Settlement Currency and Tax (RERCT) was enacted on January 14, 2016, in order to allow taxpayers, individuals or legal entities, the regularization of resources,goods or undeclared rights or declared with omission or inaccuracy, since the lawful origin, ie, so understood those from legal activities or crimes that have been amnestied by the law.

The application of RERCT restricted to the resident or domiciled in the country on 31.12.2014 and the estate whose succession is open from that date. Call Law Repatriation, Law No. 13,254 makes it likely regularization both assets, resources and rights. They have been submitted and held abroad, as those who have been repatriated by residents or domiciled in the country. Sanctioned law that allows the adjustment of undeclared assets held abroad or repatriated. Joining the program will occur through the delivery single statement to the IRS and the Bank Central, the full payment of income tax given the rate of 15% and the payment ofa fine of 100% of the tax.

The accession will mean the extinction of criminal liability of crimes related to regulated goods such as crimes against the tax order, money laundering, tax evasion, false crimes and tax evasion social security contributions. In addition, there will be a remission of tax credits arising from non-compliance with tax obligations and reducing full of penalties and interest, as well as the removal of penalties by the Central Bank or any other regulatory entity. It is important to note that the total amount of resources, assets and rights to be settled will be convertedfor the national currency based on the dollar exchange rate in 31.12.2014, or R $ 2.66 per US $ 1.00.

Did you find this useful?