BRAZIL LAW AND PRACTICE Contributed by: Alan Campos Elias Thomaz, Juliana Sene Ikeda, Ricardo Barretto Ferreira da Silva and Camila Sabino Del Sasso, Campos Thomaz Advogados
Indirect three main levies: Programa de Integração Social (PIS)/ Contribuição para o Financiamento da Segu- ridade Social (COFINS) (federal social contributions on revenues), imposto sobre circulação de merca- dorias e serviços (ICMS; state-level value added tax on goods and certain services) and imposto sobre serviços (ISS; municipal service tax). To simplify this fragmented structure, Brazil is implementing a land - mark tax reform. The reform is intended to introduce a dual VAT system – the contribution on goods and services ( contribuição sobre bens e serviços CBS) at the federal level and the tax on goods and services ( imposto sobre bens e serviços IBS) at the subnational level – between 2026 and 2033. This modernisation aims to reduce cumulative taxation, harmonise com - pliance rules and align Brazil’s indirect tax system with international standards. taxation currently involves Brazil’s international tax regime is also being modern - ised. Concerning transfer pricing, Law No 14,596/2023 adopted a new, OECD-aligned transfer-pricing frame - work based on the arm’s-length principle, replacing the former fixed-margin model. Thin-capitalisation rules restrict interest deductibility on related-party debt exceeding twice the investor’s equity participa - tion or involving lenders in low-tax jurisdictions. 9.2 Withholding Taxes on Dividends, Interest, Etc Dividends distributed from profits determined under Brazilian tax law were exempt from withholding income tax for many years. However, a 2025 reform reintroduced a withholding rate of up to 10% on divi - dends. Interest payments to non-resident lenders are sub - ject to 15% withholding income tax, or 25% when the beneficiary is resident in a low-tax or privileged tax regime. Royalties, management fees and techni - cal service fees paid abroad are also subject to 15% withholding, plus a 10% contribution for intervention in the economic domain ( contribuição de intervenção no domínio econômico CIDE) on royalties and techni - cal services. Brazil has signed over 35 double-taxation treaties, which typically reduce withholding tax on interest
and royalties to between 10% and 15%. Treaty relief depends on beneficial ownership and compliance with anti-treaty-shopping provisions. Cross-border services may also trigger PIS/COFINS import and municipal ISS if the service is rendered or utilised in Brazil. Careful contract structuring is therefore necessary to prevent double or cascading taxation. 9.3 Tax Mitigation Strategies Given the complexity of Brazil’s multi-layered tax framework and its ongoing reform, a comprehensive tax planning strategy is strongly recommended for any new venture or investment in Brazil. Early assess - ment of corporate structure, financing arrangements and potential tax exposures is essential to ensure efficiency, compliance and predictability in the long term. Brazil also offers sectoral and regional incen - tives. Foreign investors often combine these incen - tives with treaty-based planning in jurisdictions. Cross-border acquisitions frequently employ debt- pushdown strategies, allowing the acquirer to deduct interest on acquisition financing subject to thin-capi - talisation and transfer-pricing rules. Asset acquisitions enable buyers to step up the tax basis of fixed assets for depreciation, while share acquisitions may achieve similar effects through post-acquisition mergers that revalue goodwill under specific conditions. Companies may carry forward net operating losses to offset up to 30% of annual taxable income, though group consolidation is not allowed. 9.4 Tax on Sale or Other Dispositions of FDI Capital gains realised by non-residents on the sale or disposal of Brazilian assets or shares are subject to taxation in Brazil at progressive rates, generally increasing with the size of the gain. The applicable rate is typically lower for modest gains and higher for substantial transactions, ensuring proportional treat - ment across different investment scales. When both the seller and buyer are non-residents, the buyer must appoint a Brazilian tax representative to withhold and remit the tax. Gains realised by inves - tors based in low-tax or privileged tax jurisdictions are
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