Tax Law Highlights | Bill No. 1.087/25: Income Tax Reform in Brazil

Updates in Evidence:

On November 5, 2025, the Brazilian Senate plenary approved Bill No. 1,087/2025 (PL No. 1,087/2025). This bill proposes a reform of the Income Tax system, with the goal of making it more just and progressive. To provide a clearer understanding of the subject and clarify some important points, this Legal Update examines the main aspects of the bill, including: (i) changes to the monthly and annual income tax calculation base for individuals; (ii) taxation of high incomes; and (iii) the allocation of additional tax revenues.

Introduction

Bill No. 1,087/2025 seeks to restructure the taxation of individuals' income by reducing the tax burden on lower incomes and introducing a minimum contribution for higher earnings. The proposal increases the monthly exemption threshold to R$5,000 and establishes progressive reductions for incomes up to R$7,350, reflecting efforts to correct the historical misalignment of the individual income tax table. For annual income, taxpayers earning up to R$60,000 will remain exempt, with gradual reductions applicable for earnings up to R$88,200.

Additionally, the bill introduces the so-called Minimum Income Tax, a mechanism designed to ensure that taxpayers with significant financial capacity—particularly those receiving profits and dividends—contribute a minimum effective tax amount. The bill also ends the exemption for profits and dividends derived from abroad, setting a 10% tax rate, and establishes a compensation model aimed at maintaining federative balance, ensuring that any losses in the Participation Funds are neutralized. A portion of the additional revenue will be allocated to states and municipalities, with any surplus contributing to fiscal neutrality during the transition to the Social Contribution on Consumption.

Tax Landscape

The discussion of Bill No. 1,087/2025 occurs during a period of structural revision of Brazil's tax system. Following the approval of reforms on consumption taxes, the country is now moving toward a reconfiguration of income taxation, addressing historical distortions that have led to a heavy concentration of tax burdens on salaried labor, while capital income and specific corporate structures benefited from reduced effective tax rates.

This movement aligns with international discussions and OECD guidelines on fiscal fairness, combating base erosion, and closing loopholes that created disparities between taxpayers, particularly those with higher financial capacity. Therefore, this bill represents a natural continuation of the broader process of modernizing the tax system.

Repercussions and Changes

The measures proposed in Bill No. 1,087/2025 significantly alter the taxation of individuals in Brazil. The expansion of the exemption threshold and the progressive reductions aim to alleviate the tax burden on lower and middle incomes, while the introduction of the Minimum Income Tax and the elimination of exemptions on profits and dividends distributed abroad broaden the tax base for capital income.

In parallel, the federative compensation mechanism strengthens the cooperative aspect of the reform by providing predictability and stability for States and Municipalities. Practically, taxpayers and businesses will need to adapt to new rules regarding tax calculation, withholding, and planning, with particular attention to changes in the distribution of profits.

What Conclusion Can We Draw?

Bill No. 1,087/2025 marks a structural shift in income taxation in Brazil: it broadens the exemption threshold for income tax, creates a minimum tax mechanism for high incomes, reinstates taxation on dividends, and establishes safeguards to prevent excessive tax burdens while ensuring federative balance.

While the proposal represents progress toward tax equity, its implementation will require continuous monitoring, review of existing structures, and proactive planning to mitigate risks and capitalize on opportunities within the new framework.

With the passage of Bill No. 1,087/2025, the bill will now proceed to presidential sanction, with implementation expected in January 2026, provided it is sanctioned this year. However, some related issues will still be subject to analysis under Bill No. 5,473/2025.

We will continue to monitor the legislative process and regulatory actions, and we remain available to address any questions on this topic.

*This content was prepared with the collaboration of law clerk Maria Eduarda Valbuena.

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