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The proposal — considered one of the government’s most socially impactful tax initiatives — significantly reshapes the structure of the IRPF (Imposto de Renda da Pessoa Física — Brazil’s Individual Income Tax) by expanding the exemption threshold and redistributing the tax burden. To offset this change, the Bill introduces new tax brackets, a higher levy on dividend payments, and adjustments affecting fintech companies, lottery operations, and other high‑profit sectors.

Main Changes to the IRPF Structure

To compensate for lost revenue from the expanded exemption range, the reform includes the following key measures:

Full Exemption

• 100% exemption from IRPF for monthly earnings up to R$ 5,000.

Progressive Reduction

• A gradual reduction in tax for monthly income between R$ 5,000 and R$ 7,350.
• To determine the exact taxable portion for this intermediate range, taxpayers must apply the formula:
  R$ 978.62 – (0.133145 × monthly taxable income).

New Minimum Tax and Dividend Taxation

The Bill reinforces taxation on high earners through new rules:

Minimum IRPF Tax

• Applies to individuals earning R$ 600,000 to R$ 1.2 million per year when their effective tax burden falls below 10%.
• Additional tax applies progressively, capped at 10%.

Dividend Taxation

• Dividend payments exceeding R$ 50,000, paid by a single legal entity to an individual, will be taxed at 10% via IRRF (IRRF — Imposto de Renda Retido na Fonte: Withholding Income Tax).
• The same rate applies to dividend remittances abroad.

Exceptions

• Exemptions apply to dividends paid to:
  • Foreign governments under reciprocity agreements
  • Sovereign wealth funds
  • International pension entities

Anti‑Double‑Taxation Rule

• The Bill preserves a compensatory mechanism ensuring combined corporate + personal taxation remains capped at:
  • 34% for most sectors
  • 40% for specific industries
  • 45% for financial institutions

Exclusions from the Minimum Tax Base

• Income already fully taxed at source
• Income exempt or subject to zero/reduced rates
  These amounts will not be part of the minimum tax calculation.

Revenue Compensation and Fiscal Impacts

To maintain fiscal balance, the Bill introduces targeted adjustments:

Higher Contribution Rates for Specific Sectors

• The tax rate for:
  • Fintechs
  • Securities distributors
  • Brokerage firms
    will increase from 9% to 15%.
• Taxation on fixed‑odds betting lotteries (currently 12%) will double to offset revenue losses.

Compensation for States and Municipalities

• Mechanisms will ensure subnational governments are reimbursed for potential revenue reductions.

CBS Adjustments

• Excess federal revenue will be directed toward reducing the rate of the CBS (Contribuição sobre Bens e Serviços — Contribution on Goods and Services) under Brazil’s new tax model.

Next Steps and the Urgency of Compliance (Effective 2026)

Approval of the Bill marks a significant step toward a more progressive tax policy, fulfilling one of the government’s primary economic promises.

The text now proceeds to presidential sanction.

Effective Date

• If approved, the new rules come into force on January 1, 2026.

Compliance Alert

Both individuals and companies must pay close attention to:

• New exemption thresholds
• Progressive tax brackets
• Minimum tax requirements

The reform increases the risk of errors in calculating taxable income — especially concerning dividends, financial transactions, and high‑yield gains.

Updating accounting and tax routines is essential to maintain compliance and avoid future tax liabilities.