Pending legislation reshapes the corporate role in income tax collection and increases compliance responsibilities for profit-distributing companies
Brazil’s Congress is currently reviewing Bill No. 1,087/2025, which proposes significant changes to the country’s income tax framework. While much of the public debate has focused on the introduction of a minimum personal income tax, the bill also contains critical provisions for legal entities, particularly around withholding obligations, cross-border payments, and fiscal transparency.
Here’s what companies need to know about the bill’s impact if passed in its current form.
1. Dividend Withholding for Payments to Individuals
A cornerstone of the proposed reform is the reintroduction of income tax on dividends, which are currently exempt for individuals in Brazil. The bill establishes:
- A 10% withholding income tax (IRRF) on monthly payments exceeding R$50,000 to any one individual.
- The paying entity (legal person) is responsible for calculating and withholding the tax at the source.
- If multiple payments are made to the same recipient in a month, the total amount must be consolidated to determine the withholding obligation.
This creates a clear new duty for companies: maintain precise internal controls on monthly dividend distributions to ensure accurate taxation and avoid underreporting.
2. Providing Data for Personal Tax Reductions
To avoid overtaxing income that has already been subject to corporate taxes, the bill allows individual taxpayers to apply a “reduction factor” to their minimum personal income tax. But to do so, the company must supply detailed information.
Corporate obligations in this context include:
- Preparing financial statements in accordance with Brazilian GAAP and corporate law.
- Reporting the effective tax rate applied to profits (covering both corporate income tax (IRPJ) and social contribution tax (CSLL)).
For companies not under the actual profit regime, a simplified method may be used to estimate profit, deducting:
- Payroll and related charges
- Cost of goods sold (COGS)
- Industrial inputs
- Operational rent and interest
- Depreciation of industrial equipment
These details will allow the Federal Revenue Service to calculate whether the tax paid at the company level justifies a reduction in the recipient’s individual tax burden.
3. Taxation of Cross-Border Dividend Payments
The bill also targets dividend payments to foreign recipients, which will now be subject to a 10% withholding tax, unless an applicable tax treaty provides otherwise.
In these cases, companies must:
- Correctly identify and withhold tax at source for outbound payments.
- Report details to the Federal Revenue Service, including the amount, beneficiary, and jurisdiction.
If the effective tax burden paid by the Brazilian company exceeds certain thresholds (34%, 40%, or 45%, depending on the industry), the foreign recipient may claim a tax credit. For this to happen, the Brazilian company must provide:
- Audited financial statements
- Breakdown of profits and taxes paid
- Calculation of effective tax rate
This creates an additional layer of responsibility for cross-border profit remittances, especially for multinational group entities.
4. Enhanced Monitoring and Data Integration by Tax Authorities
The bill authorizes Brazil’s Federal Revenue Service to use data submitted by companies to:
- Pre-fill individual income tax returns
- Automatically calculate reduction factors for individual tax burdens
- Monitor the effective taxation rate on profits distributed
This makes the accuracy and timeliness of corporate reporting even more crucial, particularly for filings such as EFD-REINF, DIRF (if not replaced), and related ancillary tax obligations.
5. Broader Compliance and Operational Impact
Although the bill does not change the way companies calculate corporate income tax (IRPJ) or CSLL, it introduces significant new compliance duties, including:
- Withholding and reporting tax on dividends
- Supporting international tax credit claims
- Enhancing transparency in profit allocation and distribution
Companies will need to revise internal procedures and systems to comply with these new rules, scheduled to take effect in 2026. Failure to withhold or report properly could result in tax audits, penalties, and reputational risk.
Final Thoughts: A New Compliance Paradigm for Brazilian Corporations
Bill No. 1,087/2025 reflects a new era in the relationship between companies and Brazil’s tax system. By making legal entities active agents in income tax collection, especially on behalf of individual shareholders (whether resident or abroad), the proposed law raises the bar for fiscal governance and transparency.
Legal, accounting, and compliance teams should start preparing now. Strategic planning, training, and early system adjustments will be critical to ensure companies are ready when — and if — the new rules are enacted.