Brazil’s Law 15.270/2025, enacted on 26 November 2025, introduces significant changes to the structure of the individual income tax, focusing on expanding progressivity and correcting distortions in the current system. The main changes include:

  • The introduction of taxation for dividends paid by legal entities
  • The creation of the minimum individual income tax (IRPFM)
  • An expansion of the exemption limit for withholding tax to a monthly income of up to BRL 5,000, with a gradual reduction of the tax burden between BRL 5,000 and BRL 7,350.

This article addresses the first two points: dividend taxation and the creation of the IRPFM (Imposto de Renda Pessoa Física Mínimo, in Portuguese).

To properly understand the impact of these measures, it is essential to analyse the dividend taxation and the functioning of the IRPFM in an integrated manner. This is because amounts withheld on dividends paid throughout the year will be considered an advance payment of the tax due, subject to annual adjustment under IRPFM rules when filing the individual income tax return.

The new system seeks to ensure that taxpayers with high incomes (above BRL 600,000 annually) pay a minimum tax -- even if that income is composed of traditionally exempt sources -- to promote greater fiscal equity.

The new law establishes a fixed tax rate of 10% on amounts received by individuals as profits or dividends, provided the amount received from the same legal entity exceeds BRL 50,000 per month. This tax will be withheld at source, with the distributing company being responsible for retaining the tax at the time of payment.

The amounts withheld throughout the year do not represent a final tax but rather advances of the tax due by the individual. When the individual files the annual income tax return, these amounts will be considered in the calculation basis of the new minimum tax.

It is important to highlight the difference in the treatment of profits and dividends remitted abroad. In such cases, taxation also applies at the fixed rate of 10%, but without a minimum threshold. In other words, any amount paid to recipients abroad will be subject to a definitive withholding tax, regardless of the amount.

The IRPFM introduces a complementary tax aimed at taxpayers with annual income exceeding BRL 600,000, with progressive rates reaching a top rate of 10% for income above BRL 1.2 million per year.

The IRPFM tax calculation basis will consist of the sum of all income received by the individual during the calendar year, including taxable and exempt income, and income subject to definitive taxation. After that, certain items will be excluded to obtain the new base for application of the proper rate, which ranges from 0% to 10%. This system aims to more accurately reflect the taxpayer’s real ability to pay, ensuring that individuals with high incomes are subject to an effective minimum tax burden. The applicable rate, as mentioned, will be defined progressively according to the taxpayer’s total annual income, reaching up to 10%.

Finally, the text of Law 15.270 confirmed that profit and dividend distributions approved until 31 December 2025 will remain exempt from taxation, with limited date for payment by 31 December 2028. This transitional rule has encouraged companies to bring forward corporate resolutions to preserve the exemption in force until the end of 2025.

As expected, the imminent taxation of dividends has led many companies to seek strategies to mitigate the impact of the new law, such as corporate restructurings with an increase in the number of shareholders, especially among family members, as a way to dilute amounts distributed per CNPJ (a 14-digit identification number issued by the Brazilian Federal Reserve Service_ and consequently reduce or even eliminate the incidence of the 10% rate.

Another planning strategy involves organising personal investments so that the effective IRPFM rate is reached based on total annual income. This would allow, in certain cases, recovery of amounts withheld on dividends throughout the year through the annual tax return – DIRPF - adjustment.

Given the structural changes and the complexity of the new rules, close monitoring is highly recommended to ensure compliance and fiscal efficiency.