Bill 1.087/2025, recently presented by the Executive Branch, proposes significant changes to the Individual Income Tax (IRPF) regime. Among the main points are the expansion of the exemption range, the creation of the Minimum Individual Income Tax (IRPFM) and the taxation of dividends paid to individuals, a topic that has been the subject of debate on the national tax scene for years.
1. New exemption range and progressivity for average incomes
The proposal provides for exemption for monthly incomes of up to R$5,000.00, effective from January 2026. For those earning between R$5,000.01 and R$7,000.00 per month, a gradual reduction in the tax burden will be applied. According to the explanatory memorandum, the aim is to make the tax system fairer and more progressive, easing the tax burden on middle-income taxpayers.
2. Creation of the Minimum Individual Income Tax (IRPFM)
The text also proposes the introduction of a minimum tax rate for individuals with annual incomes of more than R$ 600,000.00, with progressive rates from 0% to 10%, according to a formula that reaches the maximum rate at 1.2 million. There is also a 10% withholding tax on monthly dividends distributed in excess of R$50,000. The measure seeks to avoid a scenario of regressive taxation, in which high-income taxpayers end up paying proportionally less tax than those with lower incomes.
3. Taxation of dividends
The Bill resumes the discussion on the levying of tax on distributed profits. According to the bill, dividends paid to individuals resident in Brazil in excess of R$ 50,000.00 per month per paying source will be subject to taxation at source, at a rate of 10%. Although this taxation applies to high amounts, the measure moves away from the Brazilian model of total exemption of dividends and moves closer to the international standard where dividend distribution is taxed.
4. Tax impacts and legislative path
According to official estimates, extending the exemption range could result in a tax waiver of around R$25.8 billion in the first year. The challenge, therefore, is to compensate for this loss resulting from the waiver by increasing tax collection among higher-income taxpayers.
The bill is still being processed in the Chamber of Deputies and depends on legislative approval to come into force from 2026. The proposed changes could significantly alter the country’s income tax model. The legislative discussion, however, will take place in a politically sensitive context, marked by the electoral calendar.
Source: https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2487436
Written by Maria Elena, Tax Planning Consultant at Drummond Advisors