Dividend Tax Rate Between India and Brazil Under DTAA

Quick answer: Under the India-Brazil DTAA as revised by the 2022 amending protocol, dividends paid by an Indian company to a Brazilian resident are taxed at 10% under Article 10(2)(a) if the beneficial owner is a company (other than a partnership) holding directly at least 20% of the paying company's capital throughout a 365-day period that includes the payment date, and at 15% under Article 10(2)(b) in all other cases — both below the domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). The protocol's revised rates apply in India for income arising from FY 2026-27 (1 April 2026) onward; for earlier years the pre-protocol flat 15% rate governs. Claiming either rate requires a Tax Residency Certificate from Brazil's Receita Federal and Form 41 (formerly Form 10F).

Key takeaways:

• Two-tier dividend rate: 10% for a ≥20%-holding corporate beneficial owner (365-day test), 15% for everyone else — both a saving against the 20% domestic rate
• The 10%/15% tiers apply only for income arising from FY 2026-27 (1 April 2026); pre-protocol years use the flat 15% rate
• Treaty signed 26 April 1988, in force from 11 March 1992; the rate-changing protocol was signed at Brasília on 24 August 2022 and entered into force 18 October 2025
• Requires a Brazilian Tax Residency Certificate plus electronically filed Form 41 (formerly Form 10F)
• Brazil has never signed the MLI — anti-abuse protection comes from the treaty's own Article 26-A (LOB + PPT), not the Multilateral Instrument

Dividend Tax Rate Between India and Brazil

The Double Taxation Avoidance Agreement (DTAA) between India and Brazil was signed on 26 April 1988 at New Delhi and entered into force on 11 March 1992. Its dividend provisions, however, are the ones investors should look at today only through the lens of the amending protocol signed at Brasília on 24 August 2022, which replaced the original Article 10 rate structure entirely. That protocol completed its ratification steps in both countries — Brazil's Legislative Decree 200 (11 September 2025) and Decree 12.667 (13 October 2025), and India's notification No. 39/2026, S.O. 1647(E) of 30 March 2026 — and entered into force on 18 October 2025. Its revised rates apply in India for income arising from FY 2026-27 onward (1 April 2026); Brazil applies the new rates to amounts paid or credited from 1 January 2026, creating a brief window (January-March 2026) where the two countries' effective dates diverge.

Under the current, in-force Article 10 of the treaty, dividends paid by an Indian company to a Brazilian resident who is the beneficial owner are capped at 10% for a qualifying corporate shareholder or 15% in all other cases — both below India's domestic withholding rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Before the 2022 protocol took effect, the treaty applied a flat 15% rate to all dividends regardless of shareholding, so the tiered structure and the 10% rate are new. This guide covers the current rates in detail; for the pre-protocol history and the withholding-tax comparison, see the India-Brazil DTAA complete guide and the withholding tax rate table.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Absent treaty relief, dividends paid by an Indian company to a non-resident shareholder are subject to withholding tax at 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), plus applicable surcharge and health and education cess. Since the Dividend Distribution Tax (DDT) was abolished from 1 April 2020, dividends are taxable directly in the shareholder's hands, which is what makes the treaty rate on withholding directly relevant to a Brazilian recipient's cash flow.

DTAA Rate (With Treaty)

Article 10(2), as replaced by the 2022 protocol, caps India's tax where "the beneficial owner of the dividends is a resident of the other Contracting State" at "(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 20 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend... or (b) 15 per cent of the gross amount of the dividends in all other cases." Both figures are ceilings inclusive of surcharge and cess — nothing is added on top.

Effective Tax Savings

A Brazilian parent meeting the 20%/365-day test on an INR 2 crore dividend saves INR 20 lakh in withholding versus the 20% domestic rate (INR 20 lakh withheld vs INR 40 lakh). A portfolio investor at the 15% general rate still saves INR 10 lakh. Brazil then credits the Indian tax against the recipient's Brazilian liability, so the saving is real, not merely a timing shift.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

Both the 10% and 15% rates under Article 10(2) require the Brazilian recipient to be the beneficial owner of the dividend — someone with the unrestricted right to use and enjoy the income, not a nominee, agent, or conduit obligated to pass it on. A shell entity inserted between the ultimate investor and the Indian subsidiary purely to access the treaty rate does not qualify, and Indian tax authorities scrutinise multi-layered holding structures for exactly this reason.

The 20%-Holding / 365-Day Test

The 10% rate under Article 10(2)(a) is available only where the beneficial owner is "a company (other than a partnership)" holding directly — not indirectly through intermediate entities — at least 20% of the Indian paying company's capital, and only where that holding has been maintained throughout a continuous 365-day period that includes the date of payment. The treaty text builds in a specific relief: when computing that 365-day period, "no account shall be taken of changes of ownership that would directly result from a merger or divisive reorganisation, or from a change of legal form" of either the holding company or the paying company. This means a Brazilian parent that reorganises internally — say, through a corporate merger — does not lose its accumulated holding period and drop to the 15% rate merely because of that internal restructuring, provided the underlying economic ownership is unchanged. A Brazilian shareholder that does not meet the 20%/365-day test — including individuals, portfolio investors, and companies below the threshold — falls to the 15% rate under Article 10(2)(b).

Tax Residency Requirement

The recipient must be a tax resident of Brazil under Article 4 of the treaty. For a company, this generally turns on incorporation or place of effective management in Brazil; for an individual, on domicile or habitual abode under Brazilian domestic law. Residence is evidenced to the Indian payer through a Tax Residency Certificate issued by Brazil's Receita Federal do Brasil (Secretaria Especial da Receita Federal do Brasil), the federal tax authority.

Anti-Abuse Rules: Article 26-A (No MLI)

Brazil has never signed the OECD Multilateral Instrument, so the India-Brazil DTAA is not a Covered Tax Agreement and the MLI's Principal Purpose Test does not modify it. Instead, the 2022 protocol inserted a comprehensive bilateral anti-abuse provision, Article 26-A (Entitlement to Benefits), combining a full Limitation of Benefits (LOB) test with its own Principal Purpose Test. Under Article 26-A(1)-(2), a Brazilian resident is entitled to treaty benefits only if it is a "qualified person" — broadly, an individual, a government body, a company whose principal class of shares is regularly traded on one or more recognised stock exchanges, certain non-profit organisations, or an entity at least 50% owned by other qualified persons over half the days of a rolling twelve-month period. Article 26-A also has an active-business test (paragraph 3) that excludes a pure holding or group-financing vehicle from relying on it, unless the investment activity is carried on by a bank, insurer, or registered securities dealer in the ordinary course of business. Separately, Article 26-A(9) provides that "a benefit under this Convention shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit" — a standalone Principal Purpose Test that applies independently of whether the LOB qualified-person test is met. Protocol clause 1 confirms India's GAAR remains available alongside Article 26-A, not instead of it.

No Permanent Establishment Connection

Article 10(4) withdraws the reduced rates where the shareholding is effectively connected with a Brazilian resident's permanent establishment or fixed base in India — the dividend is then taxed as business profits under Article 7 (or Article 14), typically at a higher rate than the 10%/15% caps.

Two Further Article 10 Provisions Worth Knowing

Article 10(1) confirms that Brazil (the recipient's residence state) may also tax the same dividend — the treaty caps India's source-state rate, it does not give India exclusive rights. And Article 10(6) protects Indian companies with Brazilian-source income: Brazil may not tax dividends an Indian company pays, or impose an undistributed-profits tax on it, merely because that company also derives profits or income from Brazil — Brazil can only reach dividends actually paid to a Brazilian resident or effectively connected with a Brazilian PE or fixed base.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

The Brazilian shareholder must obtain a Tax Residency Certificate from the Receita Federal do Brasil confirming Brazilian tax residency for the relevant fiscal year. This is the foundational document required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 and Self-Declaration

If the TRC lacks any prescribed detail — name, status, nationality, Brazilian tax ID (CNPJ or CPF), period of residence — the shareholder must also file Form 41 (formerly Form 10F) electronically, even without an Indian PAN, along with a self-declaration of beneficial ownership and no Indian PE.

Withholding Procedure for Indian Payers

Section 393(2): The TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian company must deduct tax at source on the dividend at the time of payment or credit, whichever is earlier — at 10% or 15% under the DTAA if the documentation is on file, or at 20% under domestic law if it is not.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the dividend to Brazil, the Indian payer must file Form 145 online. Where the remittance exceeds INR 5 lakh in a financial year, a Chartered Accountant must also certify Form 146, confirming the applicable DTAA rate and that TDS has been correctly deducted.

Section 395(1): Lower or Nil Withholding Certificate

If the actual tax liability is expected to be lower than the withholding amount, the Brazilian recipient — not the Indian payer — applies under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a lower or nil deduction certificate. The payer's separate route is an application under section 395(2) (section 195(2) of the Income-tax Act, 1961).

Rate Comparison Table

Worked Example

Alfa Participações S.A., a Brazilian holding company, has held 30% of the equity of an Indian manufacturing subsidiary, Bharat Componentes Pvt Ltd, for four years without interruption. Bharat Componentes declares a dividend of INR 5 crore.

• Qualifying test: Alfa is a company (not a partnership) holding directly 30% — above the 20% threshold — throughout a period well exceeding 365 days including the payment date. The 10% rate under Article 10(2)(a) applies.
• Withholding at 10%: INR 5,00,00,000 × 10% = INR 50,00,000. Alfa receives INR 4,50,00,000.
• Without the treaty (20% domestic rate): INR 5,00,00,000 × 20% = INR 1,00,00,000 withheld, leaving Alfa INR 4,00,00,000.
• Saving from claiming the treaty rate: INR 50,00,000 on this single distribution.
• Documentation: Alfa must hold a current Receita Federal TRC and file Form 41 before the payment; Bharat Componentes files Form 145 (and Form 146, since the remittance exceeds INR 5 lakh) before remitting.

Had Alfa held only 15% — below the threshold — the same dividend would be capped at 15% (INR 75,00,000 withheld): still a saving over the 20% domestic rate, but INR 25,00,000 worse than the 10% tier.

Common Mistakes and Compliance Tips

Mistake 1: Applying the Pre-Protocol Flat 15% Rate to Post-2026 Income

The most common era-confusion error is continuing to apply the pre-protocol flat 15% rate to dividends arising in India from FY 2026-27 onward. For that period, a qualifying 20%-holding corporate shareholder is entitled to the lower 10% rate, and defaulting to 15% overstates the withholding.

Mistake 2: Counting Indirect Holdings, or Merger-Reset, Toward the 20% Test

Article 10(2)(a) requires the beneficial owner to hold the 20% directly — a stake held through an intermediate third-country entity does not count, and the shareholder remains at 15%. Conversely, because the treaty specifically disregards ownership changes from a merger, divisive reorganisation, or change of legal form when computing the 365-day period, payers sometimes wrongly treat a Brazilian shareholder's internal reorganisation as resetting the clock and dropping it to 15% — absent a genuine change in economic ownership, the accumulated holding period survives.

Mistake 3: Missing the TRC, or Overlooking Article 26-A

Applying the treaty rate without a current TRC on file exposes the payer to a demand for the shortfall plus interest. And because Brazil never signed the MLI, some assume no treaty-level anti-abuse rule applies at all — in fact Article 26-A's combined LOB/PPT test can independently deny the 10%/15% rates to conduit or shell arrangements, and should be checked alongside GAAR, not instead of it.

Mistake 4: Forgetting Forms 145 and 146

Failing to file Forms 145 and 146 before remittance can attract a penalty of up to INR 1 lakh under section 462 of the Income-tax Act, 2025 (section 271-I of the Income-tax Act, 1961).

For end-to-end support on dividend repatriation and other cross-border payment compliance between India and Brazil, contact Beacon Filing's team of chartered accountants and tax advisors.

Frequently Asked Questions

What is the dividend tax rate under the India-Brazil DTAA?

Under Article 10(2) as revised by the 2022 protocol, the rate is 10% if the Brazilian beneficial owner is a company (other than a partnership) holding directly at least 20% of the Indian paying company's capital throughout a 365-day period that includes the payment date, and 15% in all other cases. Both apply for income arising in India from FY 2026-27 onward; for earlier years the pre-protocol flat 15% rate applies.

Do I need a Tax Residency Certificate to claim the reduced rate?

Yes. A Tax Residency Certificate from Brazil's Receita Federal do Brasil is required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), and Form 41 (formerly Form 10F) must also be filed electronically if the TRC lacks any prescribed detail.

Does an indirect 20% shareholding qualify for the 10% rate?

No. Article 10(2)(a) requires the beneficial owner to hold at least 20% of the paying company's capital directly. A Brazilian parent holding its stake through an intermediate entity cannot count that indirect holding toward the threshold and remains at the 15% general rate.

Does the MLI affect the India-Brazil DTAA's dividend article?

No. Brazil has not signed the OECD Multilateral Instrument, so this treaty is not a Covered Tax Agreement and the MLI's Principal Purpose Test does not apply. The 2022 protocol instead inserted the treaty's own Article 26-A, combining a Limitation of Benefits test with a standalone Principal Purpose Test.

What happens if a Brazilian shareholder undergoes an internal merger during the 365-day holding period?

Article 10(2)(a) expressly disregards ownership changes that directly result from a merger, divisive reorganisation, or change of legal form of the holding or paying company when computing the 365-day period, so a genuine internal reorganisation does not, by itself, reset the clock or drop the shareholder to the 15% rate.

What is the domestic Indian withholding rate on dividends without the treaty?

20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), plus surcharge and cess. The DTAA rates of 10%/15% are a ceiling inclusive of surcharge and cess, so nothing is added on top when the treaty rate is applied.