Brazil: Bill No. 1.087/2025, which taxes dividends and amends personal income tax rules, is approved by the House of Representatives

07 Oct 2025    3 minute read
Income Tax Reform 2025 Dividend Taxation IRPFM Personal Income Tax Withholding Tax on Dividends

In brief

On 1 October 2025, Bill 1.087 (“PL 1.087/25”), which deals with income tax reform, was unanimously approved by the House of Representatives.

PL 1.087/25 aims to: (i) reduce the personal income tax (IRPF) to zero for earnings up to BRL 5,000 per month; (ii) offer a discount on the IRPF for earnings up to BRL 7,350 per month; (iii) Fund this tax relief by reinstating an income tax on the distribution of dividends, including for non-residents, combined with a minimum personal income tax (IRPFM) for earnings above BRL 600,000 annually.

If approved by the Senate and the President, the measures will apply to taxable events occurring from 1 January 2026 onward.

Contents

More details

The following are the proposed text’s main points:

  • Reduction of income tax for the poor: Reduces the IRPF to zero for earnings up to BRL 5,000 per month and offers a discount on the IRPF for earnings up to BRL 7,350 per month.
  • IRPF on dividends paid to individuals: Starting January 2026, the distribution of profits or dividends by the same legal entity to the same individual resident in Brazil in an amount exceeding BRL 50,000 in the same month will be subject to withholding at source of the IRPF, at a rate of 10% on the total amount paid, without any deduction. This does not apply to the payment of dividends to legal entities that are resident in Brazil. Profits and dividends approved up to December 2025 can be distributed until 2028, without any withholding.
  • Annual IRPFM: Starting 2026, individuals receiving a total income exceeding BRL 600,000 annually will be subject to the IRPFM, considering all income received in the calendar year. This includes income taxed exclusively or definitively and those exempt or subject to zero or reduced rates, deducting, for example, exempt portions of capital gains, some cumulative income already taxed at source, donations received and remuneration produced by exempt securities and bonds, such as Agribusiness Credit Letters (LCA), Real Estate Credit Letters (LCI), Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs), among others.
    • Rate: The IRPFM rate will be 10% for income equal to or greater than BRL 1.2 million. For income between BRL 600,000 and BRL 1.2 million, the rate will increase linearly from zero to 10%, according to the formula provided by law (i.e., IRPFM rate % = (total income / 60,000) - 10).
    • Rebate: If the sum of the effective tax rate on profits and dividends by the IRPJ and CSLL and the effective rate of the IRPFM exceeds the nominal tax rate of the legal entity (34%, 40% and 45%), an IRPFM rebate equivalent to this rate differential on the same profits and dividends will be granted. In practice, if the profit was effectively taxed at 34% (for general legal entities), no IRPFM would be payable, and any IRPFM withheld and paid monthly should be refunded. If the profit was taxed at a rate lower than 34%, then an IRPFM would be due.
    • Ratio: The effective tax rate on the profits of the legal entity is defined as the observed ratio between (a) the amount due of the income tax and the social contribution on the net income of the legal entity and (b) the accounting profit of the legal entity, which is the result of the fiscal year before income taxes and respective provisions. Tax losses and tax benefits may affect the result of this ratio.
  • IRRF on dividends paid to non-residents: As a rule, profits and dividends paid to residents abroad (both individuals and legal entities) will be subject to a withholding tax of 10%. Similarly to residents in Brazil, if the sum of the effective tax rates exceeds the nominal rates of the legal entities (i.e., 34%, 40% or 45%), the nonresident will be entitled to request a credit or refund. Foreign governments, sovereign funds, and foreign pension funds remain exempt.

Points for attention

  • Monitoring any legislative adjustments until entry into force.
  • Profits and dividends approved up to December 2025 can be distributed until 2028, without any withholding. It is necessary to analyze the compatibility of the practice with the rules of the Corporations Law (6,404/76).
  • Review tax planning and corporate structures that distribute profits/dividends before the new law comes into force.
  • The bill establishes the obligation for the Executive Power to present, within one year, a bill with the policy for updating the income tax brackets.

Next steps

The bill will be forwarded to the Federal Senate for consideration. If there are any changes, it will return to the House for further deliberation. If approved without changes, it will go directly to the President for sanction or veto.

* * * * *

LOGO_TrenchRossiWatanabe_Brazil

Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting on foreign law.

Contact Information
Clarissa Giannetti Machado
Partner
Trench Rossi Watanabe, Sao Paulo
Read my Bio
clarissa.machado@trenchrossi.com
Reinaldo Ravelli Neto
Partner
Trench Rossi Watanabe, Sao Paulo
Read my Bio
reinaldo.ravelli@trenchrossi.com
Luciana Nobrega S. Loureiro
Partner
Trench Rossi Watanabe, São Paulo
Read my Bio
luciana.nobrega@trenchrossi.com

Copyright © 2025 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.