The idea of taxing dividends is back on the table. Paulo Guedes had defended, unsuccessfully, in 2021; Now, Haddad and his team see it as a possible breath of fresh air for struggling public accounts – in other words, income taxation is one of the few flags capable of crossing the ideological spectrum from one end to the other.
It makes sense that this is the case. Practically only tax havens do not charge taxes on dividends. Countries with padding Always tax this source of income. Of the 47 that are either members of the OECD or candidate nations to join this club (in the case of Brazil), only three countries do not charge: Estonia, Latvia and the fearless giant here.
Rates vary wildly: 5% in Greece, 7% to Argentina, 8% in Romania, 12,5% in Burkina Faso, 20% that China, 39% not uk, 42% in Denmark… But the fact is that everyone charges.
Why not here then? Those who resist the idea cite a fact: the tax burden on corporate profits, as a legal entity, is extremely high in Brazil.
And it is.
Adding the two taxes that companies here pay on top of their profits, the IRPJ and the CSLL, we have a tariff of 34%. Among OECD members, only Colombia charges more than this (35%). And the average among members of the Economic Organization for Cooperation and Development is just 23,6%.
In a scenario like this, taxing dividends sounds like abusive double taxation. But this script has a plot twist. “When you compare the taxation of profit by adding what you pay as a legal entity and as an individual, Brazil has one of the lowest burdens compared to OECD countries”, says the economist Sergio Gobettiresearcher at Ipea and former secretary of Fiscal Policy at the Ministry of Finance.
In fact. In Ireland, famous for its legislation friendly to free enterprise, taxes on profits, in the PJ, are meager 12,5%. But taxation on dividends, in physics, reaches 51%.
It works like this: for a profit of $100 million in the country of Guinness, there are $87.5 million left after taxes in the legal department. Apply 51% to that amount, and there will be $42.9 million left. Total taxation: 57,1% – against 34% here.
The fact is that the average of the 38 OECD members using this criterion rises to 42%. See here where Brazil stands compared to them:
In this other viewtake a closer look at the countries that charge the most in PJ and those that tax the most in PF:
Important to highlight: the rest of the world tends to tax the shareholder more than the company, largely because this serves as a stimulus for the reinvestment of profits in the company itself. The tendency there is for the company to grow more, generating more jobs and more GDP, and without having to pay as much tax for it.
In Brazil, the stimulus goes in the opposite direction. The company is penalized for making a profit, given the exorbitant rate. And the shareholder ends up being rewarded for taking money out of a productive activity and putting it into his own pocket, as he does not pay taxes on dividends.
The difference between dividends and JCP
The subject here are dividends from publicly traded companies. Those that you eventually receive when you buy their shares on the stock exchange. Therefore, the tax advantages of small and medium-sized companies do not come into play here. Neither is the tax exemption on the gains that the partners of these SMEs place in the “profits and dividends received” field on the IR declaration. This is the topic of another report by InvestNews – which you can access here.
There is also the issue of interest on equity (JCP). It is a type of income that only exists in Brazil. Taxation, in this case, is reversed. The company does not need count as profit which it distributes in the form of JCP. It’s like an expense. So she ends up paying less IRPJ and CSSL. In compensation, shareholders bear a 15% tax, which is withheld at source.
Ultimately, this tool exchanges a 34% tax on the PJ for a 15% tax on the PF. It’s worth it for the company – if shareholders are willing to pay the price.
But the amount that companies can distribute as JCP is restricted to a percentage of net equity – what the company owns minus debts. Only those who have a huge net worth are able to pay the bulk of their earnings in the form of JCP. This is the case with banks. BB, for example, paid dividends of R$0.53 per share in 2024. In JCP, much more: R$2.62. 80% of the total.
But overall volume in the form of JCP is muted. It represents around 10% of the pie that publicly traded companies distribute.
Now back to the world of common, exempt dividends.
The government’s idea is not to tax everyone who receives this type of income – at least from what has been disclosed so far. It’s creating a “tax for millionaires”. More specifically, for those who earn more than R$1 million per year.
Only these would pay something on what they receive as dividends – whether from their own companies, or via shares in publicly traded companies in which they hold shares.
It’s no different from what happens in several OECD countries – several of the tariffs in the table are the ceiling, applicable only to the top of the pyramid. It is worth examining the most relevant case, that of the United States.
In the USA, less than 1% pay the full tax
The rate that the federal government charges on dividends there is 20%. In practice, it is more than that, as States also charge their own IRs. To avoid getting into a tax maze, let’s just focus on their federal income tax – which accounts for the bulk of the tax, anyway.
Only less than 1% of the American population pays the “full tariff”, 20%.
By law, this tax only applies to those who earn more than US$492,300 per year. In reais, it amounts to R$2.8 million – or R$234 thousand per month. And who wins all this? Just a handful of American citizens.
Earnings of US$430,000 per year already place a person in the richest 1% club there. And maximum taxation begins north of that landmark.
Anyone who takes out between $44,625 and $492,299 pays an intermediate federal tax rate on dividends: 15%. Just over half (56%) of the American population is in this range.
Below $44,625 annually, you pay nothing. I.e: 44% of the American population is exempt tax on dividend gains.
The average income in the US is $42,220 annually. In Brazilian money per month, it’s R$20,000 – in our country it’s only R$1,800; It’s the difference between a rich country and a poor country. But that’s another matter. What matters here is: anyone who earns the reasonable US average income is already within the exemption range. It makes a difference in a country where 65% of the middle class owns shares – upstairs, there are 87%; on the bottom, 25%.
Here, the formula that the government has in mind is more intricate than that of the USA.
A “minimum tax” would be stipulated for those earning R$1 million and above. Let’s say this minimum is 15% (they haven’t stipulated it yet). If you received R$1 million in CLT salary, you have already paid 27% on top of that. So everything is fine. You won’t have to pay anything more.
But… Who took R$1 million in salary more R$1 million in dividends will have paid “only” R$270 thousand (those 27% CLT). R$270 thousand, compared to the total amount of R$2 million, corresponds to 13.5%.
Ready. If the minimum tax passes through Congress and the rate is actually 15%, there will be a shortage of 2.5% of R$2 million. And the lion will kindly demand an extra R$50,000 from you.
One more example: if the source of the other million was shares in real estate funds, which are exempt, you pay the extra R$50,000 in the same way. But if it came from the income from an inheritance of R$10 million invested in a common fund, that’s it – in a case like this, you will have already paid an IR of at least 15%, at source.
It is worth remembering that, in Brazil, only 307 thousand people take out more than R$1 million per year (R$83 thousand monthly). From the 0,22% of the adult population.
And that. In the link below, better understand the impact that the taxation of dividends for this group would have in the country:
READ MORE: ‘Tax for millionaires’ would reach 15,000 small companies that support Simples
