Brazilian President Luiz Inácio Lula da Silva has enacted Bill No. 1,087/2025, which will take effect as law upon its official publication. The measure introduces structural changes to Income Tax applicable to individuals, as well as to the distribution of profits and dividends, with effects already expected to reshape corporate and tax planning for Brazilian companies.
Key Changes
As of January 2026:
- Individuals with monthly income of up to BRL 5,000 will be exempt from Income Tax;
- A minimum Personal Income Tax will be introduced in the annual tax return for individuals earning from BRL 600,000 per year, with progressive rates of up to 10% for income exceeding BRL 1.2 million, including dividends;
- The taxation of profits and dividends will be reintroduced, with a 10% withholding income tax on monthly distributions exceeding BRL 50,000 per partner/per entity (CNPJ). For foreign partners, no minimum threshold applies.
To avoid overlapping tax burdens between legal entities and individuals, the law establishes a reduction mechanism aimed at preventing excessive double taxation.
Transition Rule for Profits Earned up to 2025
The law provides that profits distributed up to December 31, 2025, provided they are distributable under corporate law, will not be subject to the new taxation, even if paid by 2028.
This is the most sensitive point—and also the most criticized by experts and technical bodies.
CFC Warns of Incompatibility with Corporate Law and Brazilian Accounting Standards
The Conselho Federal de Contabilidade (CFC) has issued a technical note indicating that certain requirements of the new law are not compatible with the current accounting and corporate legal framework.
According to the CFC—and in line with concerns already raised by legal scholars—the provision conditioning the maintenance of the tax exemption for profits accrued up to 2025 on corporate approval still in 2025 is not only unconstitutional but also impracticable, as:
- it is not possible to approve results before the end of the fiscal year without violating proper accounting procedures;
- linking a tax benefit to the timing of corporate approval compromises the reliability of financial statements; and
- the requirement creates legal uncertainty, affecting governance of information and the activities of directors and accounting professionals.
For these reasons, the CFC recommended vetoing the provisions that establish deadlines and conditions incompatible with Brazilian Accounting Standards.
Despite these significant technical criticisms, the law was enacted in full, maintaining the obligations and deadlines set forth in the text approved by Congress.
Recommendations and Next Steps
In light of this scenario, it is essential that companies, directors, and business families review their corporate structures and profit distribution flows, especially those designed under the framework of the previous legislation.
We recommend:
- assessing the impact of the new taxation on dividends;
- reviewing corporate protocols, agreements, and distribution policies;
- reorganizing internal processes to ensure compliance with the new requirements;
- planning the proper use of the transition rule until December 31, 2025, where possible anticipating part of the distribution based on November 2025 results.
We remain available to assist with the transition to the new regime, as well as to review and adapt existing corporate structures, with a focus on minimizing the impacts of the new taxation and preserving legal certainty in operations.