The Brazilian Federal Senate has unanimously passed Bill No. 1,087/2025 (“Bill 1,087/25”), introducing significant changes to the Income Tax due by individuals (Imposto de Renda da Pessoa Física – “IRPF”) and withholding taxation on profits distributed to non residents, requiring most Brazilian companies to take immediate action. The Senate’s approved text generally reflects the version approved by the Chamber of Deputies (see the client alert we prepared on the matter), with minor wording adjustments.
Bill 1,087/25 will now head to the presidential sanction and, if approved this year, will take effect on January 1, 2026. Below, we highlight the main changes proposed by the bill, as approved by the Federal Senate.
IRPF reduction
Bill 1,087/25 reduces IRPF to zero for individual taxpayers with a monthly income of up to R$ 5,000.00 (R$ 60,000.00/year) and grants a partial tax reduction for those who earn between R$ 5,000.01 and R$ 7,350.00 per month (R$ 60,000.01 and R$ 88,200.00/year). The reduction also applies to Withholding Income Tax (Imposto de Renda Retido na Fonte – “WHT”) on the 13th salary.
The current progressive scale of IRPF remains unchanged for other individuals. However, rumors are that the Executive Branch will submit a bill within one year proposing a permanent policy for updating the IRPF progressive scale.
Taxation of profits and dividends
According to the Bill 1,087/25, profits and dividends calculated up to the 2025 calendar year will not be subject to the new WHT, provided that:
The tax exemption provided for in Law 9,249/1995 remains valid for other cases, such as the distribution of profits between Brazilian legal entities and profits whose distribution to resident individuals does not exceed R$50,000.00 per month.
For the purposes of the new Minimum Taxation Regime for High-Income Individuals (“IRPFM”), commented below, profits and dividends relating to results calculated up to the calendar year 2025 may be deducted from the taxpayer’s total annual income, provided that they meet the above requirements and that their payment, credit, use, or delivery occurs in 2026, 2027, and 2028.
IRPFM
The new IRPFM regime will apply to individuals with annual income above R$600,000. The rate is linearly progressive between 0% and 10% for annual income between R$600,000.00 and R$1,199,999.99 and fixed at 10% for annual income as from R$1,200,000.00.
The IRPFM will be calculated on a consolidated basis in the income tax return, taking into account all income earned during the fiscal year. The following income will be excluded:
The following amounts may be deducted from IRPFM: (i) the IRPF calculated in the Income Tax Return; (ii) the IRRF levied exclusively at source on income included in the IRPFM tax base; (iii) the IRPF paid on profits from investments abroad; (iv) the IRRF on profits and dividends received during the calculation period; and (v) the IRPFM reduction commented below.
If the total tax collected through the withholding mechanism exceeds the actual IRPFM due, the taxpayer will be entitled to a refund of the surplus. However, no monetary correction or interest will be applied.
IRPFM Reduction
An IRPFM reduction will be granted if the sum of the effective rate on the taxation of corporate profits and the effective rate of IRPFM rate exceeds the sum of the nominal IRPJ and CSLL rates (45% for financial institutions, 40% for insurance companies, and 34% for other legal entities). The reduction will be calculated on the profits and dividends paid by each legal entity to the individual subject to the payment of IRPFM.
The methodology for calculating the reduction will depend on specific regulations, which are expected to detail the mechanics for carrying out the calculations, including how to obtain and disclose information that in many cases is unavailable to the partner/shareholder, a better definition of the legal entities subject to the above-mentioned rates, the possible impacts resulting from the reclassification of tax benefits and incentives, as well as the criteria to be adopted for assessing the effective rate in cases of consolidation of results in holding companies or economic groups.
Credit for non-residents: Instead of an IRPFM reduction, non-residents will be granted a credit calculated on the amount of profits and dividends that have been taxed, according to similar criteria, which may be claimed within 360 days from the end of each fiscal year, under the terms of regulations to be drawn up by the Executive Branch.
Key point: Profits calculated up to December 31, 2025
Of the many aspects of Bill 1,087/25 that have been criticized, the main issue relates to the conditions for benefiting from the income tax exemption on profits and dividends related to results calculated up to the 2025 calendar year, provided that their distribution is approved by December 31 of the same year.
Such requirement, in addition to representing a significant operational challenge—considering that, in practice, the results for fiscal year 2025 are unlikely to have been formally calculated and approved by the date required for deliberation—may conflict, for example, with the provisions of the Brazilian Corporations Law (Law No. 6,404/1976), which, in its Article 205, provides that dividends must be paid in the same fiscal year in which they are approved.
The conditions established to maintain the tax exemption on profits earned before the new provisions provided for in Bill 1,087/25 could threaten legal certainty and, in practice, lead to the retroactive taxation of profits and dividends earned in 2025 that are distributed later, in violation of the constitutional principles of legality, non-retroactivity, and tax anteriority.
In order to preserve the exemption on profits calculated up to December 31, 2025, it is recommended that companies carefully evaluate their current business structures and results, both current and accumulated.
