The Federal Senate has unanimously passed Bill No. 1,087/2025, which promotes a restructure of the Individual Income Tax (Imposto sobre a Renda da Pessoa Física – IRPF) Reform. As the Senate endorsed the same text previously passed by the House of Representatives, the bill now proceeds directly to presidential sanction and can take effect as early as January 2026 impacting the annual adjustment declaration to be filed in 2027.ew regime will take effect in January 2026 and will be reflected in the 2027 tax return cycle.
The measure raises the monthly exemption threshold to BRL 5,000 and reorganizes the calculation methodology by expanding the automatic deduction mechanism, which now reduces to zero the IRPF owed by taxpayers situated up to this limit. In addition to the expanded exemption, a pivotal feature of the reform is the reintroduction of dividend taxation distributed to individuals residing in Brazil and to non-residents.
Effective the year 2026, the individual whose aggregate annual income exceeds BRL 600,000.00 shall be subject to the Minimum Individual Income Tax (IRPFM), at a rate ranging from 2.5% to 10%, being fixed at 10% for total income surpassing BRL 1,200,000.00.
The text also provides that the distribution of profits and dividends by the same legal entity to the same individual resident in Brazil or to non-residents, in an amount exceeding BRL 50,000.00 (fifty thousand reais) in a single month, shall be subject to the withholding tax of the Minimum Individual Income Tax, at a rate of 10%.
Certain revenues, however, remain excluded from this base, including indemnities for material or moral damages (except lost profits), income received accumulatedly taxed exclusively at source, rural activity income, and amounts derived from exempt securities.
Taxpayers may offset the due amount with the IRPF paid in the annual declaration, the tax levied on foreign income, the Withholding Income Tax related to revenues included in the tax base, and any credit resulting from the reducing mechanism, which prevents the combined corporate and individual tax burden from exceeding the the limit corresponding to the Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) tax rates.
Profits calculated up to the 2025 fiscal year will remain exempt, provided the distribution decision is formally approved by December 31, 2025.
The reform allows the taxpayer to offset, in the annual calculation, the amounts collected in advance throughout the year. The upcoming changes demands attention, especially from taxpayers who accumulate profits for distribution, entities with specific tax regimes, and individuals with asset structures that concentrated exempt income categories. Strategic planning before 2026 will be essential to mitigate potential impacts and optimize tax efficiency under the new framework.
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