The government achieved its biggest recent victory by approving income tax exemption for those earning up to R$ 5,000. However, to finance this benefit, it created a minimum tax of 10% on high incomes. This "simple" political math has produced, as a side effect, a rush by companies to anticipate dividends and guarantee the exemption of existing stock until 2025, and a new logic for the application of resources—a movement that is already changing wealth management in the country.
With Renan Calheiros (MDB-AL) as rapporteur, the bill proposing changes to personal income tax legislation to expand the exemption bracket and reduce the tax burden on low incomes was signed into law by President Lula at the end of November. The counterpart is a monthly levy on dividends exceeding R$ 50,000 per individual and an annual adjustment that ensures a minimum tax rate of 10% on income exceeding R$ 600,000.
The new rules will take effect in 2026 and affect everyone from large companies listed on the B3 stock exchange to small businesses, as well as self-employed professionals such as doctors, dentists, and lawyers. Those working under the CLT (Brazilian labor law) regime or living off investments were excluded.
“Business owners and self-employed professionals see this as double taxation. They already pay a lot as legal entities. And now there’s an additional tax,” says Limerci Cavariani, a partner at WHG responsible for wealth planning. “The key now is to understand how the legislation allows us to optimize this tax burden.”
NeoFeed spoke with a dozen family offices and law firms to understand how business families are reacting to the new law. The dominant theme at the moment is how to ensure that profits accumulated up to 2025 are excluded from the new rule.
This is because the law stipulates that profits accrued up to this year are exempt as long as the distribution is approved by December 31st and effectively paid by 2028. The tight deadline and inconsistencies with other accounting standards have provoked reactions.
Sescon-SP, a union representing accounting service companies in the state of São Paulo, for example, filed a writ of mandamus against the text. Their argument is that it is incompatible with the law, which requires companies to calculate results and approve distributions even before the fiscal year ends.
“This project brings very profound changes and was rushed through to take effect in 2026. The quality does not match the time it took to process. It was approved with the promise, not the guarantee, that adjustments would come later. This makes no sense,” says Hermano Barbosa, tax partner at the law firm BMA Advogados.
An attempt at this agreement came last week when the Senate's Economic Affairs Committee (CAE) included in another bill (PL 5.473) the extension of the assessment period until April 2026. The change could make the transition more flexible, but it still depends on approval from the National Congress. There doesn't seem to be enough time.
In practice, lawyers have recommended calculating and distributing everything by the end of 2025, which few companies manage to do due to a lack of cash; or approving dividend payments now to occur by 2028, gaining time to generate resources.
A major move in this direction was made by Weg. The company announced on November 28th a dividend payment of almost R$ 1.9 billion, with R$ 1.43 billion in dividends and the remainder in interest on equity (JCP).
Furthermore, the industrial components manufacturer called a meeting to approve the payment of dividends calculated on the balance of retained earnings, amounting to R$ 5.2 billion, which will be paid in three annual installments, in August 2026, 2027 and 2028.
Weg was transparent and stated that the proposal is in line with the transition rule for taxation on dividends based on accumulated profit reserves from previous fiscal years.
Like them, Itaú Unibanco and Vale also used strong cash reserves and solid governance as financial predictability to position themselves before the regime change. According to BTG Pactual, companies listed on the B3 have announced approximately R$ 68 billion in dividends since November, including R$ 35 billion in extraordinary dividends.
Alternatives to cash shortages
For those who believe they will lack liquidity due to other obligations, such as investments in the operation, the lawyers are essentially offering two options, based on other legal interpretations.
The first is to incur debt to distribute dividends. However illogical it may seem, high interest payments can be treated as operating expenses and deductible from taxable income. The risk, in this case, is that the Internal Revenue Service will reject the deductibility.
“The tax authorities may argue that there is no operational purpose,” says Lucas Babo, a lawyer specializing in tax and estate planning at Cescon Barrieu. “But there are precedents in the Administrative Council of Tax Appeals (CARF) that recognize payments to partners as an activity inherent to the company. Therefore, it must be deductible.”
The second option is to transform the profit now into share capital, with the intention of reducing it and returning it to the shareholders in the future. According to experts, this move is legal, although the tax authorities may allege it is a simulation.
"The Federal Revenue Service has been increasingly aggressive in its interpretations of simulation and misuse of purpose, and there is concern that this could be considered abusive in the future, potentially causing headaches," says José Dumont, head of family office solutions at Brainvest.
According to Alamy Candido, founding partner of the Candido Martins Cukier law firm, it's normal for new laws to generate doubts, and it's necessary to wait for the regulations to be finalized, which should happen next year. "We have to trust in reasonableness. Otherwise, we'll have to resort to legal action."
New logic starting in 2026
With the dispute over past dividends resolved, the second variable emerges: how to operate under the new regime and ensure tax efficiency for future dividends.
A significant change that has generated debate is the 10% withholding tax on any profits or dividends remitted to shareholders or quota holders abroad. In theory, there is a possibility of restitution of this tax if the invested company has its income taxed at an effective rate of 34%. In practice, few cases are expected, and even for those, the procedure for restitution still depends on regulation.
To make matters worse, for many foreign investors the new tax will be an increased cost, with no possibility of credit abroad. “The US and European countries, for example, will not offset the new Brazilian withholding tax. This will reduce the profitability of their investors in Brazil, in addition to creating more uncertainty. Several chambers of commerce have pointed out this damaging effect and warned of the risks of taxing international capital,” says Barbosa, from BMA.
For residents, the logic is different. The law stipulates that dividends exceeding R$ 50,000 per month (credited to the same individual) are subject to a 10% withholding tax. In other words, someone who received R$ 55,000 in March would have R$ 5,500 withheld at source.
If the other months fall below the ceiling, the taxpayer receives a refund in the following year's income tax return, without any monetary adjustment.
There is also a maximum rate of 34% for the combined withholdings of individuals and legal entities in the year, with a reduction applied if the rate exceeds this. The text provides for the return of what was withheld month by month at source in the following year, as an income tax refund, without adjustment.
“Clients will have to be very careful with cash flow, because retention is very penalizing,” says Roberto Freitas, head of wealth planning at G5 Partners.
"In practice, the reduction doesn't work because almost no company reaches that 34% rate, and that's why there are different regimes to encourage smaller companies, such as the simplified national tax system," he adds.
What happens to the financial portfolio?
The law also provides for a minimum annual income tax, covering not only dividends, but also rents and financial income (except for exempt income and REITs with more than 100 shareholders). The rule applies to total annual income above R$ 600,000, progressively increasing to 10% when it reaches R$ 1.2 million per year. In other words, if the total income portfolio does not have an effective tax rate of 10%, the remaining percentage will be charged.
At NeoFeed 's request, WHG ran simulations showing that, depending on the composition of the investment portfolio, taxable securities become more efficient than tax-exempt ones when deductions are possible due to tax withholding. "Tax efficiency may come before profitability alone. Portfolios will need to be reviewed," says Cavariani of WHG.
In the simulation, two investors receive R$ 5 million in annual dividends, which generates a withholding tax of R$ 500,000 under the new rule for each of them. However, both have financial investments of R$ 20 million with different tax characteristics.
The first individual allocated those R$ 20 million to tax-exempt securities, such as LCI and LCA, yielding 90% of the CDI rate. This generates a net return of R$ 2.34 million for him because there is no withholding income tax. Therefore, the only tax withheld will be that of the dividend, resulting in a net total of R$ 7.34 million.
The second investor decided to invest his R$ 20 million in CDBs (Certificates of Deposit), yielding 100% of the CDI (Interbank Deposit Certificate). Since bank securities are subject to a 15% tax, he will have R$ 390,000 withheld at source, generating a gross return of R$ 2.6 million.
But, with the new rule, that portion that was taxed at 15% - above the minimum of 10% - can be deducted from the total tax. In the end, he receives the R$ 5 million in dividends and his net total is R$ 7.34 million - exactly like the investor who invested in tax-exempt securities.
Just as with a financial portfolio, an analysis of a real estate portfolio is necessary. In recent years, many families have formed real estate holding companies to reduce the tax paid from 27.5% for individuals to around 15% for legal entities. Now, with the 10% increase in the tax rate, the tax becomes very similar, and perhaps the cost of these structures no longer makes sense.
“There are no standardized solutions. Each case is unique, and it’s necessary to run a simulation on the entire portfolio to understand where the inefficiencies lie,” says Mari Emmanouilides, partner at Galapagos Capital.
What family offices are seeing is that from now on, wealth management will be in symbiosis with company decisions so that it fulfills its main objective: maximizing shareholder profits.
“Family wealth planning will directly impact businesses, not just for succession. We are having several meetings with the CFOs of the companies, and this will have to be an ongoing process,” says Pedro Olmo, partner responsible for the wealth management area at Sten Multi Family Office.
