A technical overview of the proposal to end the exemption, the new rates discussed in the Tax Reform and the impacts on shareholder returns
The distribution of profits and dividends in Brazil is experiencing a moment of historical inflection. Since 1996, with Law No. 9,249, dividends paid by Brazilian companies to individuals have been exempt from Income Tax, a feature that distinguishes the national tax system from most developed economies. However, the need for fiscal adjustment and the search for greater progressivity in the system drove the second phase of the Tax Reform, which focuses on taxation on income and assets. For investors and entrepreneurs, understanding the guidelines that will shape the fiscal scenario from 2026 onwards is essential for capital preservation and corporate planning.
The concept of dividends and the current structure
To understand the proposed changes, it is essential to analyze the current mechanics. Dividends represent the portion of a company’s net income distributed to its shareholders. In the current structure, taxation occurs entirely within the legal entity (the company), through IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit), whose combined burden is around 34%.
Since the profit has been taxed at the corporate source, the distribution to the shareholder arrives “clean” of taxes. This exemption was originally created to avoid economic double taxation and simplify inspection by the Federal Revenue. In addition to dividends, there is the figure of Interest on Own Capital (JCP), a mechanism that allows the company to deduct earnings as an expense, reducing its taxable profit, while the shareholder pays 15% income tax at source.
What has changed in the collection of income tax on dividends and profits in 2026
The central question for the market is: what changed in the collection of income tax on dividends and profits in 2026? Although the full implementation of the Tax Reform on consumption (dual VAT) will actually begin in 2026, changes to Income Tax depend on the approval of complementary Bills sent by the Executive to Congress.
The base scenario worked on by the economic team and legislators involves three main pillars of change that should impact the 2026 fiscal calendar:
- Taxation on distribution: The central proposal aims to establish a tax rate on dividends received by individuals. The most debated texts suggest a 15% tax rate at source.
- IRPJ reduction: To compensate for the new charge and not increase the total tax burden on companies (which would discourage investment), the government proposes a gradual reduction in the IRPJ rate. The objective is to align Brazilian corporate taxation with the OECD average.
- Extinction or modification of the JCP: There is a strong legislative tendency to extinguish Interest on Equity, under the argument that the mechanism is used for aggressive tax planning (tax avoidance) by large corporations, artificially reducing the corporate tax calculation base.
Therefore, for the 2026 tax cycle, the expectation is for a model where the company’s profit is less taxed, but the shareholder’s passive income is taxed, changing the dynamics of valuation of income-paying assets.
Influencing factors in tax reformulation
The change in the game rule is not arbitrary; it responds to specific macroeconomic and political pressures. Several vectors influence decision-making on profit taxation:
- International alignment: Brazil is one of the few relevant countries (alongside Estonia and Latvia, for example) that completely exempts dividends. The OECD recommends taxation as a form of fiscal justice.
- Tax deficit: The federal government’s need to eliminate the primary deficit and stabilize public debt requires new sources of revenue. Taxing dividends is seen as a potential revenue of tens of billions of reais.
- Progressivity (Social Justice): Data from the Federal Revenue indicate that the majority of the income of the super-rich in Brazil comes from exempt profits and dividends. Taxation aims to correct distortions where employees pay up to 27.5% on the progressive table, while large shareholders have exempt income.
Current scenario and impacts on the capital market
The imminence of these changes generates immediate reactions in the financial market and corporate strategies. Analysis of the current scenario reveals defensive and adaptation movements.
Companies listed on B3 can change their capital allocation policy. Given the taxation of dividends, there may be a greater incentive to repurchase shares (buyback) or to reinvest profits in the operation itself, to the detriment of cash distribution. For the investor focused on passive income (strategy of dividend yield), the attractiveness of certain stocks may decline, requiring a higher risk premium in asset prices.
Furthermore, the end of the JCP would significantly impact the banking and banking sector. utilities (energy and sanitation), which intensively use this instrument for tax optimization. Analysts estimate that, without the counterpart of the IRPJ reduction, the net profit of these companies could suffer a significant contraction.
Frequently Asked Questions About Taxation of Profits
Will small businesses and Simples Nacional be affected?
Most of the proposals presented so far provide for an exemption range for dividends received from micro and small companies covered by Simples Nacional and Presumed Profit, up to a certain monthly limit (e.g. R$20,000 or 5 minimum wages), so as not to burden the small entrepreneur.
How are Real Estate Funds (FIIs) and Fiagros?
Although they technically distribute income and not classic dividends, FIIs and Fiagros always enter the discussion. So far, pressure from the real estate industry and the agribusiness sector has managed to maintain the exemption for individuals in these vehicles, under the justification of promoting strategic sectors.
Does the change already apply to accumulated profits?
Generally, tax laws respect the principle of precedence and acquired rights. The tendency is for taxation to only apply to profits generated after the new law comes into effect, or to distributions made after the cut-off date, depending on the final wording of the legal text.
The transition to a dividend taxation model in 2026 represents a modernization of the Brazilian system, bringing it closer to global practices, but brings short-term challenges to asset pricing and investors’ cash flow. It is crucial to monitor the progress of bills complementary to the Tax Reform, as details about rates, exemptions and the IRPJ reduction schedule will define the real impact on the net profitability of the portfolios. Disclaimer: This content is exclusively informative and analytical in nature and does not constitute investment recommendations or legal/tax advice.
