STF declares 25% Income Tax on Retirement Payments to Non-Resident Unconstitutional
The Brazilian Supreme Federal Court (STF) has ruled that the 25% income tax withheld at source on retirement and pension payments made to individuals residing abroad is unconstitutional. The decision was issued in Extraordinary Appeal (ARE) 132749, under the General Repercussion system (Theme 1174).
The withholding obligation was based on Article 7 of Law 9,779/99, which equates pension and retirement income remitted abroad with income from labor or services for tax purposes.
According to the majority opinion, led by Justice Dias Toffoli, merely residing outside Brazil does not reflect greater economic capacity and therefore cannot justify a higher tax burden compared to retirees residing in Brazil. The case in question involved a retiree living in Portugal who received the equivalent of Brazil’s minimum wage yet was still subject to the 25% withholding tax.
The STF found the tax rule unconstitutional for violating the constitutional principles of progressivity, equality, non-confiscation, and the obligation to protect the elderly.
While the decision takes effect from its publication and has binding authority, it does not prevent the future enactment of legislation that differentiates tax treatment between residents and non-residents—so long as such differentiation respects constitutional principles of ability to pay and proportionality. In this context, Bill 1418/2007, which proposes a differentiated income tax treatment for non-resident individuals, remains under discussion in the Chamber of Deputies, though it has been inactive since 2021. If you have questions about how this ruling may affect your tax obligations or planning, our tax law team is available to assist. Contact us at tributario@lbm-legal.com.br