Brazil: Bill No. 1,087/2025 aims to tax dividends and amend income tax rules

In brief

On 18 March 2025, the federal government presented Bill No. 1,087 (“PL 1.087/25“) to the National Congress.

PL 1.087/25 aims to (i) reduce the personal income tax (IRPF) to zero for those earning up to BRL 5,000 per month; (ii) offer a discount on the IRPF for those earning up to BRL 7,000 per month; (iii) fund this tax relief by creating a minimum personal income tax (IRPFM) for those earning above BRL 600,000 annually; and (iv) fund this tax relief by creating an income tax on the distribution of dividends, including for nonresidents.

If approved, the measures will apply to taxable events occurring from 1 January 2026 onward. The federal government presented the bill to the National Congress to be voted on an urgent basis, for up to 45 days (until 2 May 2025).

In more detail

The following are the proposed text’s main points:

• Reduction of income tax for the poor: Reduces the IRPF to zero for those earning up to BRL 5,000 per month and offers a discount on the IRPF for those earning up to BRL 7,000 per month.
• Monthly IRPFM: 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 IRPFM, 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.
• 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 exclusively the following: (a) capital gains, except net gains in the capital market; (b) accumulated income received; (c) donations in anticipation of inheritance; (d) income from savings accounts; (e) indemnities received, except for lost profits; (f) exempt income from retirement benefits or diseases as provided by law; and (g) income from exempt or zero-rate securities, except income from shares and other equity interests.
• 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).
• Deductions: Once the annual IRPFM is calculated, individuals may deduct the income tax paid on income subject to the progressive table (e.g., 27.5%), the withholding tax on income, the income tax paid on financial investments and profits earned abroad, the definitive income tax on other income, and the reducer provided on dividends.
• Adjustment: Since dividends are currently exempt from income tax, their value is included in the calculation of the IRPFM of up to 10% to be paid. However, since profits are already taxed by the corporate income tax (IRPJ) and the social contribution on net income (CSLL) in companies, the bill offers an IRPFM reducer calculated on the IRPJ and CSLL paid by the legal entities distributing the dividends.
• Reducer: 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 reducer 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.
• Nonresidents: 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.

Although this matter is still developing, several points should be subject to discussion in the National Congress, such as the need to define how the withholding tax (IRRF) on dividends paid to non-residents can be recovered (whether through refund or offset against future withholding tax), the treatment of profit reserves and how they will be handled, among others.