Executive summary

On 5 November 2025, the Brazilian Senate approved Bill of Law No. 1,087/2025 (the Bill), introducing substantial changes to Brazil's tax framework. A key provision is the expansion of Individual Income Tax (IRPF) exemption brackets for low-income earners — a cornerstone of the current Government's campaign since the last election. To offset the anticipated loss in revenue, the Bill reintroduces a 10% withholding tax (WHT) on dividends distributed to certain resident individuals, as well as to nonresident individuals and legal entities. It also introduces other changes to the IRPF, including a new minimum tax for high-income individuals, with mechanisms to prevent double taxation still pending regulation.

The Chamber of Deputies had approved the Bill in October 2025. With the Senate's approval, it now awaits presidential review and potential vetoes. If enacted without amendments or vetoes, the new rules will take effect on 1 January 2026.

Background and current situation

On 18 March 2025, the Brazilian Government submitted Bill of Law No. 1,087/2025 to Congress, marking a significant milestone in Brazil's tax reform efforts. The Bill proposes substantial changes for Brazilian resident individual taxpayers, as well as nonresident investors, by amending specific provisions of Laws 9,250/95 (Individual Income Tax) and 9,249/95 (Corporate Income Tax). (For background, see EY Global Tax Alert, Brazilian government proposes taxing dividends of nonresident shareholders, dated 19 March 2025.)

The Chamber of Deputies unanimously approved the Bill in October 2025, and the Senate has approved it with minor modifications. The Bill must now go through presidential sanction.

The potential conversion of the Bill into law could represent a pivotal shift in Brazil's tax landscape and is rooted in the government's commitment to reducing the tax burden on low-income individuals.

The main changes proposed by the Bill are outlined below.

Low-income exemption

The measure at the core of the Government's proposal in the Bill is the expansion of the IRPF exemption brackets for lower-income taxpayers, aimed at providing tax relief to the most vulnerable segments of the population. Under the Bill, monthly income of up to 5,000 Brazilian Real (BRL5,000) would be exempt from IRPF. Additionally, reduced taxation would apply to monthly income between BRL5,000 and BRL7,350. The Government views this initiative as a step toward correcting inequities in the Brazilian income tax system, with the potential to benefit a significant portion of the population. However, the measure would also lead to a reduction in tax revenue, which the Bill seeks to offset through the countermeasures described below (i.e., WHT on dividends paid to individuals, minimum IRPF and dividends to nonresidents).

WHT on dividends paid to individuals

Proposed Article 6-A establishes a 10% withholding income tax (WHT) on dividends paid to Brazilian-resident individuals that exceed BRL50k in a given month, with no deductions permitted from the calculation basis. Moreover, if there is more than one payment by the same entity within a month, the total amount must be aggregated and recalculated for WHT purposes.

Importantly, paragraph 3 of proposed Article 6-A provides an exemption for profits accrued up to fiscal year 2025 if their distribution is approved by 31 December 2025, provided it is carried out in accordance with the original terms of approval.

Minimum Individual Income Tax

Proposed Article 16-A introduces the concept of a Minimum Individual Income Tax (IRPFM) for individuals with annual income exceeding BRL600k. This threshold includes income that is exempt, or subject to a zero or reduced tax rate. Additionally, dividends paid to individuals are excluded from this calculation, provided that the distribution is approved by 31 December 2025 and payment occurs until 2028 and observes the terms of the approval documentation.

The Bill also excludes from this calculation income from rural activities, capital gains (unless arising from transactions on stock exchanges), inheritances, distributions from certain investment funds, as well as income from certain financial instruments.

If the income threshold is exceeded, the IRPFM would be levied at progressive rates, reaching up to 10%. Proposed Article 16-B introduces a relief mechanism to prevent double taxation. If the combined effective tax rate of the distributing entity and the IRPFM rate exceeds the aggregate nominal rates of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) — currently totaling 34% for companies in general and up to 45% for certain financial institutions — a reduction will be applied to avoid double taxation. Applications for these credits must be submitted within specified deadlines. The specific mechanisms and procedures for the credit would need to be regulated by an Executive act. Moreover, the Bill would also allow for the recovery of income tax already withheld at the source — for example, on dividends that exceed BRL50k in a month.

Dividends paid to nonresidents

In addition to measures focused on Brazilian resident individuals, the Bill introduces a 10% WHT on dividends paid to nonresident individuals or legal entities.

This is achieved through changes to Article 10 of Law No. 9,249, which currently exempts dividends paid by Brazilian entities, regardless of the recipient's status or residence jurisdiction.

Specifically, the Bill introduces paragraph 4 to Article 10, under which dividends paid to nonresidents would be subject to WHT at 10%. Dividends paid to Brazilian legal entities would remain exempt. Additionally, the Bill clarifies that the WHT should not apply to profits accrued through calendar year 2025, if the distribution was approved through 31 December 2025 and the payment follows the terms of the original approval document.

Moreover, similar to the mechanism proposed for Brazilian-resident individuals, the Bill introduces a credit mechanism for foreign shareholders. If the shareholder can demonstrate that the consolidated effective tax rate of the distributing Brazilian entity — combined with the 10% WHT — exceeds the statutory IRPJ and CSLL rates (currently 34% for most companies, but potentially up to 45% for certain financial institutions), a credit may be granted to avoid double taxation. The procedure for claiming the credit would need to be regulated.

Implications and next steps

If enacted in 2025, the new rules will take effect on 1 January 2026. Brazilian-resident taxpayers and nonresident investors in Brazil should closely monitor the legislative developments and prepare for potential actions in the event of presidential ratification.

In particular, multinational groups with Brazilian subsidiaries should: (i) assess the potential impact of the dividend WHT on their cash repatriation strategies; (ii) determine the destination of retained earnings prior to 31 December 2025; and (iii) explore alternative structures or approaches to address the effects going forward.