Royalty Tax Rate Between India and Brazil Under DTAA

Quick answer: Under the India-Brazil DTAA as revised by the 2022 protocol, royalties paid from India to a Brazilian resident are taxed at 15% under Article 12(2)(a) for trademarks and at 10% under Article 12(2)(b) for all other royalties (patents, copyrights, know-how, industrial/commercial/scientific equipment) — both below India's domestic rate of 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Before the protocol, trademark royalties were taxed at a uniquely high 25%, so taxpayers used to elect the lower domestic rate instead; the current 15% treaty rate is now the beneficial one. The revised rates apply for income arising in India from FY 2026-27 (1 April 2026) onward.

Key takeaways:

• Two-tier royalty rate: 15% for trademarks, 10% for everything else — both a saving against the 20% domestic rate
• Pre-protocol, trademark royalties sat at a rare 25% treaty rate, above the domestic rate of that era — the 2022 protocol reversed this into a saving
• The 15%/10% split applies for income arising in India from FY 2026-27 onward; earlier years follow the pre-protocol figures
• Requires a Brazilian Tax Residency Certificate and Form 41 (formerly Form 10F)
• No MLI — anti-abuse runs through the treaty's own Article 26-A (LOB + PPT), inserted by the 2022 protocol

Royalty Tax Rate Between India and Brazil

The India-Brazil DTAA was signed on 26 April 1988 and entered into force on 11 March 1992. Its royalty article, Article 12, was substantially revised by the amending protocol signed at Brasília on 24 August 2022, which entered into force on 18 October 2025 following Brazil's ratification (Legislative Decree 200, 11 September 2025; Decree 12.667, 13 October 2025) and India's notification No. 39/2026, S.O. 1647(E) of 30 March 2026. The revised rate applies in India for income arising from FY 2026-27 onward (1 April 2026); Brazil applies it to amounts paid or credited from 1 January 2026.

Under the current Article 12(2), royalties are taxed at two different rates depending on their nature: 15% for trademark royalties, and 10% for every other category — patents, copyrights, designs, models, plans, secret formulas or processes, and industrial, commercial or scientific equipment. Both figures are below India's domestic withholding rate of 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), which doubled from 10% with effect from 1 April 2023.

Why the Trademark Rate Used to Be a Trap

Before the 2022 protocol, the India-Brazil treaty set trademark royalties at a distinctively high 25% — above, not below, the domestic rate of that era. Taxpayers therefore historically elected the domestic rate under the more-beneficial-rate rule rather than the 25% treaty figure, and in the years the domestic royalty rate was 10% (April 2015 to March 2023), that domestic election was a significant saving. The 2022 protocol reversed this dynamic entirely: trademark royalties now sit at 15%, below even the post-2023 domestic rate of 20%, so the current treaty rate is the one to apply — continuing to default to the old 25% figure, or to the domestic rate out of habit, now overpays.

Treaty Rate vs Domestic Rate

Royalty-Specific Treaty Provisions Under Article 12

Article 12(1): Residence-State Taxation

Royalties paid by an Indian resident to a Brazilian resident may also be taxed in Brazil, the recipient's residence state — Article 12 caps India's source-state rate, it does not remove Brazil's right to tax.

Article 12(2): The Rate Split

As replaced by the 2022 protocol, Article 12(2) caps India's tax at "(a) 15 per cent of the gross amount of the royalties arising from the use or the right to use trademarks; [or] (b) 10 per cent of the gross amount of the royalties in all other cases" — provided the beneficial owner is a resident of Brazil.

Article 12(3): Definition of Royalties

Article 12(3), unchanged since the original 1988 treaty, defines the term in full: "payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematography films, films or tapes for television or radio broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience." Two points follow from the drafting. Trade marks are named inside this single definition, so the 15% tier in paragraph 2(a) is a rate carve-out from it rather than a separate class of income. And the closing limb — information concerning industrial, commercial or scientific experience — is the treaty's know-how clause, which sits in the 10% tier with everything else that is not a trade mark.

Article 12(4): The Permanent-Establishment Exception

As replaced by the 2022 protocol, "the provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein" and the right or property generating the royalty is effectively connected with that PE. In that case the royalty is taxed as business profits under Article 7, not capped at 15%/10%.

Article 12(5): Source Rule

Also replaced by the 2022 protocol, Article 12(5) provides that "royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State" — so a royalty paid by an Indian licensee is deemed to arise in India regardless of where the licensed right is exploited. Where the payer is not resident in either state but has a permanent establishment or fixed base there that bears the cost of the royalty, the royalty is instead deemed to arise where that PE or fixed base is situated — relevant, for instance, if a non-Indian, non-Brazilian group entity licenses IP through an Indian branch.

Who Qualifies for the Reduced Rate

Beneficial Ownership and Tax Residency

The 15%/10% caps require the Brazilian recipient to be the beneficial owner of the royalty and a tax resident of Brazil under Article 4 — a nominee or conduit licensor does not qualify. Residence is evidenced through a Tax Residency Certificate from the Receita Federal do Brasil.

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

Brazil has never signed the OECD Multilateral Instrument, so the treaty is not a Covered Tax Agreement and the MLI's Principal Purpose Test does not apply. The 2022 protocol's own Article 26-A instead requires a Brazilian licensor to be a "qualified person" — an individual, government body, a company whose principal class of shares is regularly traded on one or more recognised stock exchanges, a qualifying non-profit, or an entity majority-owned by qualified persons — subject to an active-business exception that excludes pure IP-holding vehicles from relying on it unless the activity is genuinely operational. Article 26-A(9) independently denies any benefit where obtaining it "was one of the principal purposes of any arrangement or transaction," catching IP-licensing structures routed through Brazil primarily to access the 10%/15% caps. India's domestic GAAR remains available in parallel (Protocol clause 1).

Documentation and Withholding Procedure

The Brazilian licensor needs a current Tax Residency Certificate from the Receita Federal do Brasil (required under section 159(8) of the Income-tax Act, 2025, section 90(4) of the Income-tax Act, 1961) and, if the TRC lacks any prescribed detail, must file Form 41 (formerly Form 10F) electronically, together with a self-declaration of beneficial ownership and no Indian PE. The Indian licensee deducts tax under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), files Form 145 online before remitting the royalty, and obtains a Chartered Accountant's Form 146 where the remittance exceeds INR 5 lakh. Where the Brazilian licensor's actual liability is lower than the withholding, it applies under section 395(1) (section 197 of the Income-tax Act, 1961) for a lower or nil-deduction certificate; the payer's own route to a determination is section 395(2) (section 195(2) of the Income-tax Act, 1961).

Worked Example

Marca Design Ltda, a Brazilian design house, licenses a patented manufacturing process to an Indian factory for INR 3 crore in annual royalties, and separately licenses its house trademark to the same factory for INR 1 crore.

• Patent royalty (other-royalty category): INR 3,00,00,000 × 10% = INR 30,00,000 withheld under Article 12(2)(b), versus INR 60,00,000 at the 20% domestic rate — a saving of INR 30,00,000.
• Trademark royalty: INR 1,00,00,000 × 15% = INR 15,00,000 withheld under Article 12(2)(a), versus INR 20,00,000 at the 20% domestic rate — a saving of INR 5,00,000.
• Documentation: Marca Design needs a current Receita Federal TRC and Form 41 on file for both payments; the Indian factory files Form 145 and Form 146 before each remittance.

Common Mistakes and Compliance Tips

Mistake 1: Applying the Stale Pre-Protocol 25% Trademark Rate

The most consequential legacy error is continuing to apply the pre-2022-protocol 25% treaty rate — or the domestic rate out of old habit — to trademark royalties. Since the protocol took effect, the treaty rate is 15%, now more beneficial than the 20% domestic rate, and under section 159(4) the more-beneficial rate always applies.

Mistake 2: Applying a Single Blended Rate to Mixed Licensing Agreements

A licence covering both a trademark and underlying know-how or a patent needs the payment apportioned between the 15% trademark category and the 10% general category — a single blended rate applied to the whole fee risks under- or over-withholding on the trademark portion specifically.

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 shortfall demand plus interest. And because Brazil never signed the MLI, some assume no treaty anti-abuse rule applies — Article 26-A's LOB/PPT test can independently deny the reduced rates to a conduit IP-holding structure, alongside GAAR.

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).

Royalty and technology-transfer agreements between an Indian licensee and a Brazilian licensor should also be checked against India's FEMA/RBI reporting requirements for the underlying agreement, separately from the withholding-tax analysis above — the tax treatment under the DTAA does not by itself satisfy any exchange-control filing that the arrangement may trigger. For a fuller treaty overview see the India-Brazil DTAA complete guide and the withholding tax rate table. For structuring IP licensing and cross-border royalty payments between India and Brazil, contact Beacon Filing's chartered accountants and tax advisors.

Frequently Asked Questions

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

15% for trademark royalties under Article 12(2)(a), and 10% for all other royalties (patents, copyrights, know-how, equipment) under Article 12(2)(b). Both apply for income arising in India from FY 2026-27 onward, versus a 20% domestic rate.

Why did the India-Brazil treaty have a 25% rate on trademark royalties?

The original 1988 treaty set trademark royalties uniquely high, at 25% — above the domestic rate of that era — so taxpayers historically elected the domestic rate instead. The 2022 protocol lowered the trademark rate to 15%, which is now more beneficial than the current 20% domestic rate.

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

20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) — doubled from 10% with effect from 1 April 2023 under the Finance Act 2023.

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

No. Brazil has not signed the OECD Multilateral Instrument, so this treaty is not a Covered Tax Agreement. 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 the royalty is connected with a permanent establishment in India?

Article 12(4) withdraws the 15%/10% caps where the licensing right is effectively connected with the Brazilian resident's permanent establishment in India — the royalty is then taxed as business profits under Article 7 at the applicable corporate rate.

What documentation does a Brazilian licensor need to claim the reduced rate?

A Tax Residency Certificate from the Receita Federal do Brasil, Form 41 (formerly Form 10F) filed electronically if the TRC lacks prescribed details, and a self-declaration of beneficial ownership and no Indian PE. The Indian licensee must also file Form 145 (and Form 146 for remittances above INR 5 lakh).