Bill No. 1,087/2025 | Personal Income Tax
The National Congress has approved Bill No. 1,087/2025 (Bill 1,087/2025), which substantially changes the taxation of personal income in Brazil. The Bill has been submitted for presidential approval and will be published as law once signed. The new rules are expected to take effect on January 1, 2026.
The approved text increases the exemption threshold for the Personal Income Tax (IRPF) to monthly earnings of up to BRL 5,000.00. In addition, for income between BRL 5,000.01 and BRL 7,350.00, a regressive rate reduction will apply, aiming to mitigate the tax burden during the transition between brackets.
To offset the relief granted to lower-income brackets, the new law introduces compensatory measures.
In this context, dividends distributed by Brazilian legal entities, currently exempt, will become subject to a 10% Withholding Income Tax (WHT) on dividends paid by legal entities to individuals, provided that the amounts exceed BRL 50,000.00 per month per beneficiary.
Dividends derived from profits accrued up to the end of the 2025 calendar year will remain exempt, even if paid after 2025, as long as their distribution is formally approved by December 31, 2025. These dividends may be paid in the 2026, 2027, or 2028 calendar years, as provided for in approved corporate documents.
The WHT levied on dividends will constitute an advance payment of the IRPF due in the taxpayer’s Annual Adjustment Statement, when the Minimum Personal Income Tax (IRPFM) will be calculated. The minimum tax rate will apply to taxpayers with annual income exceeding BRL 600,000.00, ranging from 0% to 10% for annual income above BRL 1,200,000.00.
For profits and dividends paid to non-residents, the new law establishes a flat 10% WHT, regardless of the amount. Taxation will be exclusively levied at source and will apply to both individuals and legal entities domiciled abroad.
Resident individuals and non-resident investors may claim back, in whole or in part, the WHT levied on dividends if the combined corporate tax burden of the distributing entity and the WHT exceeds the nominal rates of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL), normally levied at a combined rate of 34% (for non-financial companies).
Companies and their shareholders should carefully review their financial statements to ensure that all accumulated profits are properly recognized in the accounting records and that their distribution is formally approved by the end of 2025.
Written by the Tax Law team at CSMV Advogados.
This bulletin is for informational purposes only and should not be considered legal advice.
