Bill No. 1.087/2025, which taxes dividends and amend Personal Income Tax rules, is approved by the Senate and waits for the Presidential approval

In brief

On November 5^th, 2025, Bill 1.087 (“PL 1.087/25”), which deals with income tax reform, was unanimously approved by the Senate and was remitted for the presidential approval to be published as Ordinary Law still in 2025.

PL 1.087/25 aims to (i) reduce the personal income tax (IRPF) to zero for earnings up to BRL 5,000 per month; (ii) offer a discount on the IRPF for earnings up to BRL 7,350 per month; (iii) fund this tax relief by reinstating an income tax on the distribution of dividends, including for non-residents, combined with a minimum personal income tax (IRPFM) for earnings above BRL 600,000 annually.

In the coming days, the Bill should be approved by the President, who may still veto any article, meaning that the new Law will apply to taxable events occurring from 1 January 2026 onward.

In more detail

The text approved by the Senate is identical to the one previously voted on by the House of Representatives, having undergone only minor editorial adjustments to preserve legislative drafting standards.

We note that the prospective new Law has the following main provisions:

• Reduction of income tax for the poor: reduces the IRPF to zero for earnings up to BRL 5,000 per month and offers a discount on the IRPF for earnings up to BRL 7,350 per month.
• IRPF on dividends paid to individuals: starting January 2026, the distribution of profits or dividends by the same legal entity to the same individual resident in Brazil in an amount exceeding BRL 50,000 in the same month will be subject to withholding at source of the IRPF, at a rate of 10% on the total amount paid, without any deduction. This does not apply to the payment of dividends to legal entities that are resident in Brazil. Profits and dividends approved up to December 2025 can be distributed until 2028, without any withholding.
• Annual IRPFM: starting 2026, individuals receiving a total income exceeding BRL 600,000 annually will be subject to the IRPFM (Minimum personal income tax), considering all income received in the calendar year. This includes income taxed exclusively or definitively and those exempt or subject to zero or reduced rates, deducting, for example, exempt portions of capital gains, some cumulative income already taxed at source, donations received and remuneration produced by exempt securities and bonds, such as Agribusiness Credit Letters (LCA), Real Estate Credit Letters (LCI), Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs), among others.
  • Rate: the IRPFM rate will be 10% for income equal to or greater than BRL 1.2 million. For income between BRL 600,000 and BRL 1.2 million, the rate will increase linearly from zero to 10%, according to the formula provided by law (i.e., IRPFM rate % = (total income / 60,000) -10).
  • Rebate: if the sum of the effective tax rate on profits and dividends by the IRPJ and CSLL and the effective rate of the IRPFM exceeds the nominal tax rate of the legal entity (34%, 40% and 45%), an IRPFM rebate equivalent to this rate differential on the same profits and dividends will be granted. In practice, if the profit was effectively taxed at 34% (for general legal entities), no IRPFM would be payable, and any IRPFM withheld and paid monthly should be refunded. If the profit was taxed at a rate lower than 34%, then an IRPFM would be due.
  • Ratio: the effective tax rate on the profits of the legal entity is defined as the observed ratio between (a) the amount due of the income tax and the social contribution on the net income of the legal entity and (b) the accounting profit of the legal entity, which is the result of the fiscal year before income taxes and respective provisions. Tax losses and tax benefits may affect the result of this ratio.
• IRRF on dividends paid to non-residents: as a rule, profits and dividends paid to residents abroad (both individuals and legal entities) will be subject to a withholding tax of 10%. Similarly to residents in Brazil, if the sum of the effective tax rates exceeds the nominal rates of the legal entities (i.e., 34%, 40% or 45%), the nonresident will be entitled to request a credit or refund. Foreign governments, sovereign funds, and foreign pension funds remain exempt.

Points for attention:

• Profits and dividends approved up to December 2025 can be distributed until 2028, without any withholding. It is necessary (i) to analyze the compatibility of the practice with the rules of the Corporations Law (6,404/76), as well as review the planning of dividend distribution, cash management, capitalization strategies, and debt-raising mechanisms, in order to achieve optimal tax efficiency.
• The Bill establishes the obligation for the Executive Power to present, within one year, a Bill with the policy for updating the Income Tax brackets.
• Senator Renan Calheiros’ Report emphasized that the chosen approach was not to introduce significant changes to the Bill, so that the Law may be enacted still in 2025, in compliance with the annual anteriority principle. Nevertheless, the text itself indicates that the Senate intends to submit a supplementary bill in 2026 to address provisions of the Law that require adjustment or further regulation.
• The reintroduction of dividend taxation, as currently proposed, presents potential constitutional and legal issues that may be challenged by taxpayers, particularly through judicial proceedings.

Next steps:

The Bill will be forwarded to the President for sanction or veto within the next 15 business days.