Approval of Bill No. 1,087/2025 by the National Congress: Key Points, Timing of Dividend Taxation, and Considerations Regarding the IRPFM
Originally published in November 2025
On November 5, 2025, Bill No. 1,087/2025 was approved by the National Congress. The text now goes to the President for approval and, if definitively enacted, will take effect on January 1, 2026.
The Bill proposes three major changes to the income taxation system: (i) expanding the personal income tax (IRPF) exemption bracket for taxpayers earning up to R$ 5,000.00 per month, with a gradual reduction in tax owed for income between R$ 5,000.00 and R$ 7,350.00; (ii) taxing, at a 10% rate, dividends distributed by legal entities to individuals resident in Brazil, when exceeding R$ 50,000.00 per month; and (iii) creating the Minimum Personal Income Tax (IRPFM) for taxpayers with annual income exceeding R$ 600,000.00, with a rate that may reach up to 10% for annual income above R$ 1,200,000.00.
In practice, the taxation of dividends and the introduction of the IRPFM serve as offsetting measures designed to neutralize the revenue loss resulting from the expanded IRPF exemption bracket.
Regarding the timing of dividend taxation, it is worth noting that the distribution of profits generated through the end of the 2025 calendar year will remain exempt, even if the actual payment occurs after that period, provided that the decision to distribute them is formally recorded in corporate minutes by December 31, 2025. The distribution may take place in the 2026, 2027, or 2028 calendar years, depending on what is stipulated in the respective distribution minutes.
As for the IRPFM, we recommend caution: while the need to promote greater tax fairness in Brazil is undeniable, the IRPFM proposal calls for critical analysis from a legal and constitutional standpoint. Broadly speaking, the Bill provides for the IRPFM to apply to gross income, without allowing the deduction of various expenses essential to individuals. By taxing global gross income rather than income actually made available to the taxpayer, the tax may conflict with the principle of economic availability set out in Article 43 of the National Tax Code (CTN).
This is just one of several controversial points raised by the Bill, underscoring the need for an in-depth understanding of it to ensure adequate asset protection for taxpayers in the years ahead.
Lorusso & Partners will continue to monitor the progress of the Bill and remain available to clarify any questions, as well as to develop tailored tax, wealth, and succession planning strategies.
