New bill promises relief for lower incomes and introduces minimum taxation on high earners
Bill No. 1,087/2025, currently under review by Brazil’s National Congress, proposes major changes to the Personal Income Tax (IRPF) system, with implementation planned for January 1, 2026. The reform has two main objectives: (1) to ease the tax burden for low- and middle-income earners, and (2) to introduce minimum taxation on individuals with high annual earnings.
Here’s what taxpayers — especially high-net-worth individuals and investors — need to know about the new rules and compliance duties.
1. Monthly Tax Relief for Income Up to R$7,000
The bill introduces monthly tax reductions for individuals earning up to R$7,000 per month in taxable income:
- For incomes up to R$5,000/month: full exemption, with a maximum reduction of R$312.89 in monthly tax liability.
- For incomes between R$5,000.01 and R$7,000/month: the benefit gradually phases out.
- For incomes above R$7,000/month: no reduction applies.
This measure is expected to benefit Brazil’s working-class and lower middle-income populations, promoting greater tax equity.
2. Annual Tax Relief for Incomes Up to R$84,000
In addition to monthly reductions, the reform provides annual tax relief based on total yearly income:
- Taxpayers earning up to R$60,000/year will be fully exempt from personal income tax.
- For those earning between R$60,000.01 and R$84,000/year, a progressive reduction will apply.
- These reductions can be combined with the 20% simplified deduction, potentially expanding the number of zero-tax filers.
3. Minimum Income Tax for High Earners (IRPFM)
The most significant innovation is the creation of a Minimum Personal Income Tax (IRPFM) — aimed at individuals with total annual income exceeding R$600,000, regardless of the income source.
How it works:
- For incomes between R$600,000 and R$1.2 million/year: a progressive rate of up to 10% applies.
- For incomes above R$1.2 million/year: a flat 10% is levied on the calculated base.
The calculation includes all income types, even those currently exempt or subject to flat-source taxation, except for:
- Savings account interest,
- Accident indemnities,
- Inheritances and donations.
The IRPFM acts as a minimum tax floor, and any amount already withheld or paid can be credited in the taxpayer’s annual return. If there is a shortfall, it must be settled; if overpaid, it can be refunded.
4. 10% Withholding on Monthly Dividends Over R$50,000
The bill reintroduces taxation on dividends, which are currently exempt for individuals:
- If a person receives more than R$50,000/month in dividends from a single company, a 10% withholding tax will apply.
- This withholding acts as a prepayment toward the IRPFM, and will be adjusted during the annual income tax reconciliation.
This change directly targets high-income investors and business owners who currently benefit from tax-free capital distributions.
5. New Compliance Duties for Individual Taxpayers
With the new framework, high-earning individuals will face increased compliance requirements. Key obligations include:
- Tracking all income sources, including exempt and flat-taxed earnings.
- Verifying dividend withholding where monthly payments exceed R$50,000.
- Calculating IRPFM liability in the annual return and reconciling it with taxes already paid.
- Providing detailed disclosures if requesting deductions, exemptions, or to avoid double taxation with corporate earnings.
These requirements aim to enhance transparency and reduce tax avoidance through fragmentation of income streams.
Conclusion: A Step Toward a More Progressive Tax System
Bill No. 1,087/2025 marks a major shift in Brazil’s income tax structure. It introduces progressivity and fairness, providing relief for lower-income earners while ensuring that high-income individuals contribute a minimum effective rate.
For most Brazilian taxpayers, the reform will result in lower tax burdens or full exemption. However, high-income individuals and those with passive or investment-based earnings will need to adapt to the new minimum tax structure and reporting requirements.
⚠️ Important: This is still a draft bill, and amendments may occur during its legislative process. Monitoring updates will be essential for accurate 2026 tax planning.