In April 2025, the Brazilian Senate approved Legislative Decree No. 170/2025, ratifying the protocol that amends the Convention between the Government of the Federative Republic of Brazil and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.
This update represents a significant milestone in the evolving tax and economic relationship between the nations, especially given the increasing volume of trade and investment flows between Brazil and China. The ratification follows the approval of the same protocol by the Brazilian Chamber of Deputies in November 2024, shortly before President Xi Jinping’s visit to Brazil, further emphasising the diplomatic and economic relevance of this move.
Background to the measure
The original Brazil–China tax treaty was signed in 1991 and entered into force in 1994. At that time, both countries occupied very different positions in the global economic order.
Over the past three decades, the two economies have undergone substantial transformation, and their bilateral relationship has deepened notably, with China emerging as Brazil’s largest trading partner. However, the original treaty provisions failed to keep pace with these developments, lacking important mechanisms commonly found in more recent tax treaties, such as more precise definitions of permanent establishments, clearer dispute resolution frameworks, and up-to-date anti-abuse rules.
As a result, investors and tax authorities often faced ambiguity when interpreting and applying the agreement’s terms.
The main changes under the new protocol
The new protocol introduces key changes designed to update the treaty in line with international standards, particularly those promoted by the OECD and reflected in the BEPS project.
Among the most notable modifications is the refinement of the permanent establishment concept. The updated text includes a more detailed definition that clarifies when the provision of services may create a taxable presence in the other country. This change provides greater legal certainty for service-based business models, which are increasingly common in the global economy.
The protocol also revises the treaty’s rules on withholding taxes, reducing rates on dividends, interest, and royalties under specific conditions. For example, dividends paid to a company holding at least 25% of the paying company’s capital may now be taxed at a maximum rate of 10%, promoting deeper cross-border equity investments.
Another important revision concerns the taxation of royalties. Under the original treaty, royalties were subject to a maximum withholding tax rate of 25% when related to the use of trademarks, and 15% in all other cases. The new protocol significantly reduces these rates, enhancing the treaty’s competitiveness and alignment with international standards. Specifically, royalties paid for the use or right to use trademarks may now be taxed at a maximum rate of 15%, while all other royalties are capped at 10%, provided the recipient is the beneficial owner and a resident of the other contracting state. This change lowers the tax burden on cross-border technology transfers, licensing agreements, and intellectual property use – key components in modern international business.
Additionally, the inclusion of a principal purpose test aligns the treaty with the anti-abuse provisions recommended by the OECD. This clause allows tax authorities to deny treaty benefits where obtaining such benefits was one of the principal purposes of a transaction or arrangement. The aim is to prevent treaty shopping and ensure that the treaty is applied in good faith, consistently with its original intent. The protocol also enhances the treaty’s dispute resolution mechanisms by introducing a more robust mutual agreement procedure, offering taxpayers a formal way to resolve disputes between the contracting states and minimise the risk of double taxation.
These amendments demonstrate Brazil’s growing commitment to aligning its tax treaty network with global norms. They also follow a broader trend observed in recent years, which includes Brazil’s updated agreement with the UK and the adoption of the OECD’s pillar two framework through Provisional Measure 1,262/24.
Final considerations regarding the Brazil–China tax treaty update
The ratification of the new protocol not only brings technical improvements to the Brazil–China tax treaty but also symbolises a broader geopolitical and economic realignment. As Brazil continues to pursue OECD accession and expand its network of modernised double tax agreements, this protocol reinforces the country’s commitment to transparency, legal certainty, and competitiveness in international taxation.
For investors and multinational enterprises, the updated agreement reduces the risk of double taxation and enhances predictability in tax treatment. It is particularly relevant for industries such as agribusiness, mining, and infrastructure, where Chinese investment has been significant and growing.
In the broader context, this modernisation strengthens bilateral economic ties and provides a model for how Brazil can recalibrate its international tax agreements to match the evolving dynamics of global trade and investment.
