While everyone was quite busy with the end of the 30-year exemption on dividends distributed to individuals (new withholding tax at the rate of 10% introduced by Law No. 15,270/2025), Complementary Law (LC) No. 224/2025, also from the end of last year, increased the withholding tax rate on Interest on Equity (the so called JCP) from 15% to 17.5%. A significant double whammy for revenue purposes and especially relevant for taxpayers’ pockets.

Given this new scenario, the question is: how is the comparative efficiency between JCP and dividends reconfigured?

The starting point is structural. Dividends are distributed after the full incidence of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) on the company’s profit — whose combined rate, under the Real Profit regime, reaches 34%. Dividends do not generate deductible expenses for the company. Interest on Equity (JCP), on the other hand, is deductible from the tax base for Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL), according to Article 9 of Law No. 9,249/1995, calculated on specific equity accounts and limited to the pro rata variation of the Long-Term Interest Rate (TJLP). This asymmetry in treatment for legal entities is the core advantage of JCP and, although it has been on shaky ground, it still persists.

At first glance, the calculation seems simple: the distributed profit was, as a rule, taxed at 34% (IRPJ/CSLL under the actual profit regime) and will now also be subject to IRRF of 10% (total tax burden, in principle, of 44%). The portion paid as JCP will be deductible for IRPJ/CSLL purposes (34%), but taxed at IRRF of 17.5% (total tax burden of 16.5%). The difference is significant and still persists even after the increase in the IRRF rate on JCP promoted by LC No. 224/2025.

In addition to this, we have two other major recent milestones on the subject of JCP. The first is Law No. 14,789/2023, which restricted the equity accounts eligible for the calculation of JCP and was followed by the respective Normative Instruction (IN RFB No. 2,296/2025), which went even further: From 2024 onwards, only paid-in capital, capital reserves, profit reserves — except for the tax incentive reserve —, treasury shares, and accumulated profits or losses are included in the calculation base. Adjustments for asset valuation, revaluation reserves, and tax incentives that previously inflated net worth for JCP purposes were excluded. The same law also prohibited the use of positive asset variations without the actual inflow of assets, generating some additional doubts.

The second milestone, but now favorable, is the judgment of Theme No. 1,319 by the Superior Court of Justice (STJ), which occurred at the end of 2025, under the repetitive appeals procedure. The First Section of the STJ established the binding thesis that it is possible to deduct the so-called “retroactive JCP” from the IRPJ/CSLL calculation base.

Therefore, we have the possibility of deducting a larger volume of JCP considering a broader period, but under a potentially more restricted base and with a higher withholding tax rate. Do we still have JCP efficiency on dividends?

The analysis should be a little more in-depth, especially because the IRPF (Individual Income Tax) on dividends paid to individuals in Brazil is only an advance payment of the IRPFM (Individual Income Tax for Financial Transactions). Law No. 15,270/2025 determines that the IRPFM is levied at progressive linear rates of up to 10% on a total income of R$ 600,000 to R$ 1.2 million. The mechanism provides that, from the calculated IRPFM, the IRPF calculated on the income considered in the total income is deducted, such as the IRPF calculated in the annual adjustment declaration, the IRRF (Withholding Income Tax) on monthly dividends and the IRRF levied on the JCP (even if definitive). Both dividends and JCP are therefore part of the income base on which the IRPFM is calculated.

This is where a very important difference lies: for the individual shareholder classified in the maximum IRPFM bracket, the JCP would be subject to 10% tax. Although the legislation allows for the deduction of income tax withheld on JCP payments, as this is 17.5%, the excess of 7.5 percentage points needs to be carefully analyzed to avoid ‘waste’ due to its non-utilization. In the case of dividends, the 10% IRRF corresponds exactly to the maximum IRPFM rate, allowing for its full deduction, in addition to an express provision for its utilization or refund.

In other words, the IRRF on dividends can generate a refund, while the IRRF on JCP only reduces the IRPFM (but does not impact the IRPF due or to be refunded in the annual adjustment declaration).

But these differences, although real, do not alter the result of the comparison in the overall “PJ (company) + PF (individual)” analysis.

The 17.5% withholding tax on interest on equity (IRRF) — although higher than the income tax on financial transactions (IRPFM) that it deducts — is largely offset by the corporate income tax (IRPJ) and social contribution on net profit (CSLL) savings generated for the legal entity, as demonstrated above. For shareholders with income below the IRPFM threshold, the apparent inefficiency does not even manifest itself: the 17.5% withholding tax is definitive without conflict with the minimum tax, and the advantage of JCP is even clearer.

The point of attention here is to know the shareholding structure and the tax situation of the profit-paying entity: depending on the situation, it is worth considering whether a portion of the remuneration would not be marginally more efficient via dividend, calibrating the volume of JCP to the point where the savings for the legal entity comfortably exceed the cost of the definitive withholding.

The new regulatory environment does not eliminate the advantage of JCP; on the contrary, in many cases it reinforces it, given the end of the dividend exemption. But the effectiveness of the instrument now depends on new variables: the shareholder’s income profile, their exposure to income tax, the volume of eligible net worth, and the availability of untimely interest on equity. Taxpayers are left with the task of modeling this balance between interest on equity and dividends on a case-by-case basis. So, have you done your homework yet?