Brazil and China:
double taxation agreement explained
A practical guide for Chinese businesses, investors and advisers dealing with Brazil. What the treaty covers, what it does not, and what Brazilian taxes still apply.
Contact UsNot yet familiar with the Brazilian tax system? We recommend that you read our practical guide first. The guide covers every major tax that may apply to cross-border transactions with Brazil, with worked examples and full calculations.
Brazil and China have a double taxation agreement in force but it does not eliminate Brazilian withholding taxes.
The Brazil-China Convention for the Avoidance of Double Taxation entered into force in 1991, making it one of the earlier treaties in Brazil's network. It reflects the source-country taxation approach characteristic of Brazilian treaty practice of that era and may reduce Brazilian withholding rates for qualifying Chinese recipients, but it does not eliminate them. Chinese businesses investing in or trading with Brazil must account for the full Brazilian tax stack when pricing or structuring cross-border payments.
China is Brazil's largest trading partner and a leading source of foreign direct investment, with significant exposure across energy, mining, infrastructure, agribusiness and manufacturing. The volume and scale of cross-border payments between the two countries means that the tax treatment of each income type has material commercial consequences. Small differences in withholding rates or credit eligibility can represent substantial sums at the transaction sizes typical of Chinese investment in Brazil.
CIDE, ISS and IOF are generally outside the treaty's scope and continue to apply under Brazilian domestic law regardless of any treaty position. Chinese enterprises benefit from a 95% exemption on qualifying dividends received from foreign subsidiaries under China's domestic participation exemption rules, which has historically interacted with Brazil's prior dividend exemption. From 1 January 2026, Brazil imposes a 10% IRRF on dividends paid to non-residents, altering that dynamic and increasing the importance of confirming treaty rates and credit positions for Chinese corporate investors.
Although not expressly listed in the original treaty text, the Social Contribution on Net Profit (CSLL) has generally been treated as a covered tax for treaty purposes, following administrative and judicial developments in Brazil. Chinese advisers should include CSLL when computing the effective Brazilian tax burden for the purpose of calculating any foreign tax credit available in China.
What the Brazil-China treaty covers
The treaty sets reduced withholding rates and allocates taxing rights between China and Brazil. The main issues for Chinese businesses dealing with Brazil are set out below.
Dividends
From 1 January 2026, Brazil imposes a 10% IRRF on dividends paid to non-residents. The treaty may reduce or cap this rate for qualifying Chinese recipients depending on shareholding thresholds and beneficial ownership requirements. Chinese corporate investors should assess how the Brazilian withholding interacts with China's domestic participation exemption, which provides a 95% exemption on qualifying dividends from foreign subsidiaries. Where the exemption applies, the Brazilian withholding becomes largely a final cost rather than a creditable tax, making the treaty rate directly relevant to the effective return on Brazilian investments.
Interest
The treaty reduces Brazilian withholding on interest below the domestic 15% rate. The applicable treaty rate must be confirmed for each payment type and the Chinese recipient must satisfy beneficial ownership requirements. Interest paid by Brazilian entities to related-party Chinese lenders is also subject to Brazil's thin capitalisation rules, which operate independently of the treaty and may restrict the deductibility of interest on loans from Chinese shareholders or related parties.
Technical note: The classification of Interest on Net Equity (JCP/IoNE) under the treaty remains a point of legal discussion, with arguments for both interest and dividend treatment. This can materially affect withholding tax outcomes and the credit available in China. Confirm treatment before pricing or structuring intragroup financing arrangements.
Royalties
Royalties paid from Brazil to China attract IRRF plus CIDE (10%) under domestic law. The treaty may reduce the IRRF component. CIDE is generally outside the treaty's scope and continues to apply regardless of treaty position. Chinese companies licensing technology, know-how or IP to Brazilian subsidiaries or joint venture partners should confirm the full tax cost on both the Brazilian and Chinese sides before agreeing royalty rates in intercompany arrangements.
Technical services
Technical service fees paid from Brazil to China may attract IRRF, CIDE, PIS/COFINS-Import and ISS under domestic law. The treaty may reduce the IRRF component but typically does not eliminate the other levies. Chinese engineering, construction and technology companies providing services to Brazilian entities, particularly in infrastructure and energy projects, are commonly affected by this multi-layer tax stack.
Technical note: The characterisation of payments as technical services versus royalties is frequently contested by Brazilian tax authorities. Payments in connection with large engineering and infrastructure contracts may involve both categories, and mischaracterisation can result in incorrect withholding and penalties for the Brazilian payer.
Capital gains
Brazil generally retains the right to tax gains from the disposal of shares in Brazilian companies. Domestic progressive rates (15% to 22.5%) apply unless the treaty expressly provides otherwise for the specific asset category. Chinese investors, including private equity and strategic investors disposing of stakes in Brazilian entities, should confirm the treaty treatment of their specific structure, including whether underlying assets include Brazilian real property which attracts separate rules.
Tax sparing
The Brazil-China treaty includes tax sparing provisions under which China may grant a deemed foreign tax credit even where Brazilian tax has been reduced or exempted under domestic incentive regimes. This mechanism is relevant for Chinese investors whose Brazilian entities operate under Brazilian tax incentive programmes, as it allows the Chinese parent to claim a credit in China for Brazilian tax that was waived or reduced under those programmes.
Tax sparing provisions are not standard in modern OECD treaty practice. Their availability and the scope of qualifying Brazilian incentive regimes should be confirmed with Chinese advisers, as the State Taxation Administration applies specific requirements for the credit to be recognised.
CSLL
Although not expressly listed in the original treaty text, the Social Contribution on Net Profit (CSLL) has generally been treated as a covered tax for treaty purposes, following administrative and judicial developments in Brazil. Chinese advisers should include CSLL when computing the effective Brazilian tax burden for the purpose of determining the foreign tax credit available in China, bearing in mind that China's credit rules impose limits by country and by income category.
Beneficial ownership, substance and anti-abuse
Treaty benefits require the Chinese recipient to be the beneficial owner of the income and to satisfy any anti-abuse provisions in both the treaty and Brazilian domestic law. Chinese state-owned enterprises, investment funds and holding structures commonly used for Brazilian investments should ensure that the entity receiving Brazilian-source income has sufficient nexus to China and is not interposed solely to access treaty benefits. Brazilian tax authorities apply these requirements actively and may challenge arrangements where the Chinese entity lacks substantive operations relevant to the income received.
What Chinese businesses need to know
CIDE is not covered by the treaty
CIDE at 10% applies to royalties, technology transfers and certain services regardless of the treaty. It is borne by the Brazilian payer on top of the contract price and cannot be reduced by treaty. It is a significant cost in technology licensing and engineering service arrangements.
ISS is municipal
ISS at 2%-5% is set by each Brazilian municipality and is outside the treaty's scope. It must be verified for each transaction and the location of the Brazilian service recipient, which matters particularly for large infrastructure and construction projects spanning multiple municipalities.
IOF on wire transfers
IOF at 0.38% applies to wire transfer remittances abroad and is not reduced by the treaty. At the transaction sizes common in Chinese investment in Brazil, IOF represents a material absolute cost that should be modelled in deal economics.
The 2026 dividend withholding changes the economics
Brazil's introduction of a 10% IRRF on dividends from 1 January 2026 materially affects the return on existing and new Chinese investments in Brazilian subsidiaries. Where China's participation exemption applies, the Brazilian withholding is largely a final cost. Confirm the treaty rate and credit position before completing investment structures or dividend planning.
The Brazilian payer withholds
The Brazilian company making the payment is responsible for withholding and remitting IRRF at the correct treaty or domestic rate. In large infrastructure and energy projects, errors in withholding create primary liability for the Brazilian payer and may complicate repatriation planning for Chinese investors.
Price with the full tax stack in mind
Brazilian taxes can add 25%-40% or more to a cross-border payment depending on the income type. Confirm the treaty position and the full domestic tax stack including CIDE, PIS/COFINS-Import and ISS before agreeing commercial terms, particularly in procurement contracts and intercompany service arrangements within Chinese corporate groups operating in Brazil.
Domestic vs treaty rates at a glance
IRRF on services (indicative)
Treaty may reduce the IRRF component. China may credit Brazilian tax paid subject to its per-country and per-category credit limits. Confirm the applicable article and rate before pricing.
IRRF on dividends (indicative, from 2026)
Treaty may reduce the IRRF rate for qualifying Chinese corporate recipients. Where China's participation exemption applies, the Brazilian withholding is largely a final cost rather than a creditable tax. Tax sparing credit may apply where Brazilian incentives reduce the effective IRRF below the treaty rate. Verify with Chinese advisers.
This page is a general guide only and does not constitute legal or tax advice. Brazilian treaty analysis is fact-specific. The Brazil-China treaty is relied upon by Chinese businesses across energy, mining, infrastructure, agribusiness and manufacturing, but its applicability depends on specific facts including beneficial ownership, substance and anti-abuse rules. CIDE, ISS and IOF remain payable regardless of treaty position and must be factored into commercial pricing. The interaction between Chinese participation exemption rules, Brazil's 2026 dividend withholding and the treaty credit mechanism requires specific analysis for each investment structure. Seek transaction-specific advice from qualified Brazilian and Chinese advisers before pricing or structuring cross-border payments between China and Brazil.
