After more than two decades of exemption, Brazilian companies and investors will once again be charged taxes on dividends. However, for Andrea Bazzo Lauletta, tax partner at Mattos Filho Advogado, it is necessary to contextualize and show that the 10% is a mere advance and will be compensated.
In his opinion, people are focusing a lot on the 10% taxation of individuals, while what will be valid will be the general calculation of the income received and the tax paid in the annual declaration of individuals. “The calculation is much more complex than the 10% minimum tax rate that will be retained by the company”, explains Andrea.
The expert gives the example of an investor who receives R$1 million in dividends and has R$2 million taxed at 15% in investment funds. In this case, when calculating the annual tax, the total taxation would already be equivalent to 10%, and the investor would not need to pay anything more, and would then be able to receive the difference in dividends that was retained by the company.
This, however, will only occur in the annual declaration. Like this, the biggest impact for most investors will be having to wait for the declaration to receive the value of retained dividends. And as there is no taxation below 15%, the chances of the investor being exempt are greater.
The biggest impact will be on non-resident investors, who will pay 10% on the dividend received, or people who only receive dividends or only have exempt income and who will not be able to offset the minimum tax. But there will be many specific situations, which could lead, for example, to two partners of the same company having different taxes in the declaration.
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Limited companies will also be subject to tax
In limited companies, it would be necessary to adjust the social contract, providing for payment before the end of the year and the possibility of an interim balance sheet, for example, together with the forecast of how much the company could pay in subsequent years.
If not, the Brazilian Corporate Law rule applies, paying within 60 days. “These are precautions to define the balance on December 31st of this year that will be exempt”, explains Andrea.
Restructuring to pay less tax
Looking at the long term, companies should study ways to improve their structure to reduce the impact of tax on dividends.
In the case of a businessman who currently receives the profit from one company to invest in another loss-making company, it may be better to create a holding company that plays the role of transferring the dividend to the loss-making business without the tax.
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How taxation will work
The taxation of dividends will partially compensate for the exemption from income tax for individuals with income of up to R$5,000 per month. A minimum rate will be created for those with income above R$50,000 per month, or R$600,000 per year, called Minimum Personal Income Tax, or IRPFM.
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The rate will increase, starting at R$50,000, until reaching 10% for income above R$100,000 per month, or R$1.2 million per year. To guarantee payment of tax, starting next year, companies will withhold 10% on dividends paid here or sent abroad in excess of R$50,000 per month.
The tax for the local investor will be adjusted in the annual declaration and, if he has paid more than 10% in other income, the amount of dividends retained by the company will be released. But if you have paid less, tax will be charged on dividends until you reach the minimum percentage of 10% of total income.
In the calculation, a reducer also comes into play if the company that distributed the profit is being taxed beyond a limit set at 34% for companies in general, 40% for insurance companies and 45% for banks.
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Capital gains will be excluded from the calculation of the investor’s total income, with the exception of those obtained from the stock market, inheritances and donations. Investor gains from exempt assets, such as real estate funds and Fiagros, are also not included in the calculation of the new minimum tax rate.
