Bill No. 1,087/2025: New Rules on the Taxation of Dividends and High Incomes

On November 5, 2025, the Federal Senate approved Bill No. 1,087/2025 (“Bill 1,087”), which establishes an exemption from Individual Income Tax (“IRPF”) for taxpayers earning up to BRL 5,000.00 per month and, in return, introduces significant changes to the IRPF legislation regarding profits and dividends.

Among the main measures, the bill introduces a new system of withholding income tax (“IRRF”) on monthly distributed profits and dividends and creates an annual minimum tax of up to 10% for high-income individuals. Additionally, it establishes a 10% IRRF on profits and dividends remitted abroad.

Below are the key changes proposed by Bill 1,087.

Bill 1,087 provides for the collection of IRRF at a 10% rate on dividends paid or credited by the same legal entity to the same individual in an amount exceeding BRL 50,000.00 per month.

Distributions related to profits earned up to the 2025 calendar year, whose distribution has been approved by December 31, 2025, will not be subject to monthly withholding income tax, provided that payment occurs in accordance with the original approval terms.

The monthly withheld tax may be offset against the individual’s minimum income tax (high-income minimum taxation, described below).

The proposal also establishes, as of the 2026 calendar year, a minimum income tax of up to 10% on individuals whose total annual income exceeds BRL 600,000.00.

The taxable base includes all income earned during the year, including income subject to exclusive or final withholding taxes, except for certain items provided by law, such as:

(i) Capital gains

(ii) Amounts received as gifts in anticipation of inheritance or from inheritance

(iii) Income from savings accounts, LCI, CRI, CDA, WA, CDCA, LCA, CRA, CPR, LIG, LCD, incentivized debentures, and other tax-exempt or zero-rate securities

(iv) Income distributed by Real Estate Investment Funds (FII) and Agroindustrial Chain Investment Fund (Fiagro) traded on the stock exchange with at least 100 shareholders

(v) Profits earned up to the 2025 calendar year, whose distribution has been approved by December 31, 2025, provided that payment, credit, use, or delivery occurs by 2028 and follows the approved terms

The minimum tax rate on high incomes will range from 0% to 10% for income between BRL 600,000.00 and BRL 1,200,000.00, reaching 10% for income equal to or greater than BRL 1,200,000.00.

The minimum tax due may be deducted from: (i) the IRPF due in the annual tax return; (ii) the tax withheld exclusively at source or paid definitively on income included in the minimum taxation base; (iii) tax paid on foreign income; and (iv) the offset (reduction of minimum income tax) calculated based on the effective corporate tax burden (explained below).

From the calculated amount, IRRF withheld on dividends exceeding BRL 50,000.00 per month will also be deducted. The result of this subtraction will be added to the IRPF balance payable or refundable in the annual tax return. If the amount calculated after deductions and the application of the reducer is negative, the minimum tax due will be zero. 

Bill 1,087 introduces a specific reducer mechanism to balance the corporate income taxes already paid (IRPJ and CSLL) and the amounts required from individuals under the new high-income minimum taxation rules.

Accordingly, if the effective tax burden of the company (considering IRPJ and CSLL actually paid), combined with the individual’s effective minimum income tax rate, exceeds the nominal combined rates of IRPJ and CSLL applicable to the distributing entity (ranging from 34% to 45%, depending on the economic sector), a reducer will be granted for the minimum tax, calculated over the profits and dividends distributed to the individual.

The effective rate calculation depends on the verification of the company’s accounting profit, as reflected in its financial statements. For entities under the SIMPLES or Presumed Profits regimes, the accounting profit may be determined using a simplified calculation based on gross revenue minus certain expenses specified by law, such as payroll, cost of goods sold, and property rentals.

Finally, Bill 1,087 allows the Brazilian Federal Revenue Service of Brazil to calculate the reducer value in pre-filled tax returns based on information provided by the companies, which may facilitate the use of this mechanism.

Bill 1,087 also provides for a 10% IRRF on profits and dividends paid, credited, delivered, employed, or remitted to non-resident parties.

The following are exempt from this withholding:

a) Profits and dividends related to results earned up to the 2025 calendar year, whose distribution has been approved by December 31, 2025, provided that they are paid according to the originally approved terms.

b) Amounts remitted to foreign governments, sovereign funds, and foreign pension or retirement funds, as defined in future regulation.

To avoid excessive overall taxation, PL 1.087/2025 establishes a tax credit mechanism for non-resident beneficiaries.

If the sum of the effective tax burden on the company’s profit in Brazil (IRPJ and CSLL), plus the new 10% IRRF, exceeds the sum of the nominal IRPJ and CSLL rates applicable to the company’s sector (34% to 45%), the foreign beneficiary may opt to recognize a tax credit corresponding to the difference. The specific rules and deadlines for exercising this option will be defined by Executive Branch regulation.

The bill, already approved by the Brazilian Chamber of Deputies, now awaits presidential sanction, expected within 15 days. If sanctioned in 2025, the new rules will take effect as of January 1, 2026.

Our Tax team continues to monitor potential amendments and relevant discussions that may impact this topic.