Portuguese 
English 
Spanish 
8 min of reading 
0 comments 
The New Income Tax Reform Redefines Who Stops Paying Income Tax, Who Contributes More, and Which Strategies Become Urgent to Protect Income and Assets in Brazil
Starting in 2026, the income tax reform approved in the Senate affects the wallets of millions of Brazilians. On one hand, those earning up to R$ 5,000 per month will finally receive full exemption. On the other hand, dividends will be taxed, controversial concepts such as the so-called minimum effective rate will emerge, and the risks of double taxation in operations such as donations and profit distribution will increase. The same package that eases the burden on the lower strata pressure high incomes and opens up space for legal disputes and intense tax planning.
More than a technical change, the income tax reform addresses a historical distortion: people earning around two minimum wages were already paying income tax, even struggling to afford housing, food, healthcare, and education.
At the same time, profits and dividends had been exempt for decades. Now, the game partially changes. Those who quickly understand the new rules will have an advantage in organizing their financial life, advising clients, and avoiding paying more tax than the law actually requires.
-
The noise law will no longer be in effect at 10 PM starting in June with a new rule valid during the 2026 World Cup.
-
The Chamber opens a debate on driver’s licenses at 16 years old as part of a reform that includes around 270 proposals to change the Brazilian Traffic Code and may redesign rules for licensing, enforcement, and circulation in the country.
-
The new Civil Code could revolutionize marriages in Brazil with “express divorce” and changes that could exclude spouses from inheritance.
-
Banco do Brasil sues famous influencer for million-dollar debt and intensifies debate on delinquency, risks of seizure, and direct impact on Gkay’s credibility.
How the New Income Tax Reform Works
The starting point is the bill that changes the taxation of individual income, approved in the Senate and awaiting presidential sanction. The income tax reform has two main pillars:
- expand the exemption threshold for lower wages
- create a new tax on dividends and high incomes
The logic is clear: the government foregoes revenue at the base but tries to recover it at the top, focusing on those receiving high amounts, especially in the form of profits and dividends. At the same time, it introduces the concept of a minimum effective tax rate of 34% for companies, reigniting the debate on what constitutes income and what is merely revenue.
Who Earns Up to R$ 5,000: The Long-Awaited Relief
The good news is straightforward. Those who earn up to R$ 5,000 per month (R$ 60,000 per year) will be completely exempt from income tax. This means zero income tax on salaries within this range, providing immediate relief for over 15 million taxpayers, according to estimates mentioned in the reform debate itself.
For those earning between R$ 5,000 and R$ 7,350, the income tax reform establishes a progressive reduction of the tax owed. The idea is simple: the closer one is to R$ 5,000, the lower the tax burden compared to the old rules. Examples cited in the explanatory material illustrate this:
- an income of R$ 5,500 pays about 25% of what it would have paid before
- an income of R$ 6,000 pays approximately 50% of the previous amount
However, above R$ 7,350 per month, nothing changes in the taxation of salaries. The deduction table also remains outdated in sensitive areas, such as education, limiting relief for middle-class families that spend heavily on schools and colleges.
When the Change Becomes Effective
One of the points that creates the most confusion is the moment the income tax reform starts to have concrete effects. The logic follows the calendar year:
- everything you received in 2025 will be declared in 2026 under the old rules
- the new table and new rules will apply to income received from January 2026
- the declaration based on the reform will only be submitted in 2027, concerning what was earned in 2026
In summary, what matters is the year in which the money is deposited into your account. Only income from January 2026 onwards will truly fall under the new model. This date discrepancy opens avenues for strategies of anticipation or postponement of income, especially for those with variable income, bonuses, profit-sharing, or dividend distributions.
Dividends in Focus: How the New Tax Works
To finance the expansion of the exemption, the income tax reform places dividends at the center of the taxation of high incomes. The basic rule is as follows:
- if you receive more than R$ 50,000 in dividends in the same month from the same company, a 10% withholding tax will apply
- if you receive R$ 49,999, there is no withholding
- if you receive R$ 50,000, R$ 5,000 will be withheld on the entire amount, not just on the excess
The issue is the lack of proportionality. Just one more real in the month triggers the full 10% rate on everything, violating principles such as progressivity, ability to pay, and reasonableness. It is exactly these types of details that open space for tax theories and judicial challenges.
In addition to monthly withholding, the income tax reform also includes a progressive annual tax on so-called high incomes:
- between R$ 600,000 and R$ 1,200,000 per year, a scaled rate of 0 to 10% applies
- above R$ 1,200,000 per year, the maximum rate is 10%
The practical result is that someone who receives, for example, R$ 55,000 per month in dividends will have 10% withheld month after month, totaling R$ 66,000 for the year, even though they are far below the level at which the maximum annual rate should apply. In practice, the taxpayer anticipates tax, effectively lending money to the government until the adjustment declaration, awaiting a refund.
The Controversy of the Effective Rate: Income Is Not Revenue
Another explosive point of the income tax reform is the idea of a minimum effective rate of 34% for companies. The official reasoning is to compare the total tax paid with revenue, not profit. And this is where everything becomes distorted.
Imagine a company that generates R$ 100,000 in sales with R$ 90,000 in expenses. The profit is R$ 10,000. If it pays 34% on that R$ 10,000, it will spend R$ 3,400. From a legal standpoint, it has paid exactly 34% on income, because income is profit, the increase in wealth, not gross revenue.
When the government takes the same R$ 3,400 and divides it by the R$ 100,000 in revenue, it arrives at an “effective” rate of 3.4% and begins demanding more tax until it reaches 10% or 34% on revenue.
This transforms an income tax into something much closer to a turnover tax, encroaching on the territory of taxes such as PIS, Cofins, or future CBS and IBS.
The practical effect is to penalize businesses that operate on low margins and high volume, such as supermarkets and fuel stations, while favoring high-margin businesses, even if they generate less revenue. The natural tendency is for judicial challenges, including in constitutional control.
Accumulated Profits Until 2025: The Clock Is Already Ticking
One of the most sensitive points of the income tax reform concerns profits already accumulated in companies until December 31, 2025. The law creates a window:
- profits calculated until 12/31/2025 can be distributed without the new taxation on dividends
- provided there is formal deliberation among the partners by that date, documented in minutes
- distribution may occur throughout 2026, 2027, and 2028
If the taxpayer does not act by the end of 2025, they risk seeing old profits, which originated under an exemption regime, become subject to the new rule. In this scenario, there is room for legal actions based on acquired rights, perfect legal acts, and non-retroactivity of taxes.
Those in tax consulting or advocacy need to scrutinize each balance sheet, assess the volume of accumulated profits, and decide whether it is worth deliberating on distribution before the turn of the year.
Nonagesimal Anteriority: The Ninetieth as a Line of Defense
In addition to the rule of only collecting tax in the following year, the Constitution provides for the so-called nonagesimal anteriority. Simply put, new taxes can only be demanded 90 days after the law is published.
If the income tax reform law is published, for example, on November 25, the 90-day period would push full effectiveness to something like the end of February of the following year. This means dividends distributed in January and part of February 2026 may be defended as not subject to the new taxation due to violation of the ninetieth.
This type of detail, often overlooked in the news, can represent significant savings for high-income taxpayers and companies, especially if there is planning regarding the timing of profit distributions.
Donations, ITCMD, and the Risk of Double Taxation
The reform goes further than operational income and dividends. The income tax reform stipulates that donations will be included in the calculation of the minimum tax base, with the exception of inheritance and advance of legitimation. However, donations are already taxed by the states via ITCMD.
When the federal government begins to tax the same transaction with income tax, two problems arise:
- double taxation on the same taxable event
- encroachment on tax jurisdiction, as the Constitution assigns the tax on donations to the states
Imagine a father who donates an apartment to his child. The property is already subject to ITCMD at the state level. If the child is still classified as high income for income tax purposes, they will pay again for the same transaction, now at the federal level. This sets the stage for injunctions and declaratory actions seeking to eliminate double taxation.
Urgent Strategies to Protect Income and Assets
Given so many controversial points, the income tax reform is not just a problem. It opens up a vast field for strategic action. Some fronts stand out:
- Deliberate the Distribution of Accumulated Profits Until 12/31/2025
- Formal meeting of partners
- Serious accounting assessment of existing profits, without artificiality
- Record in minutes, ensuring the possibility of distributing these amounts in the following years without the new tax on dividends
- Organize Multiple Legal Entities with Real Substance
- The law targets dividends over R$ 50,000 per month paid by the same company
- Structures with more than one legal entity can dilute withdrawals, provided each company operates independently with its own activity, assets, accounting, and operations
- Duplicating CNPJ only on paper is a simulation and can be classified as fraud. What matters is genuine economic activity, with a clear division of functions and revenues
- Create or Strengthen Asset Holdings
- Instead of distributing all profits to individual shareholders, some can be transferred to a holding company
- The holding can serve as a “vault” that invests in real estate, stocks, funds, and other assets
- The individual can receive only what is necessary for their expenses, staying below heavier taxation thresholds and planning withdrawals over time
In all cases, the principle is the same: legitimate, documented, and legally defensible tax planning, not shortcuts or omission of income.
What to Expect Moving Forward
The income tax reform is introduced with a discourse of fiscal justice, correction of distortions, and relief for the lower strata. At the same time, it brings:
- new calculation and control obligations
- conflicts with constitutional principles
- risks of double taxation in operations such as donations
- windows of opportunity for those who plan ahead
For individuals, the minimum requirement is to understand which bracket they fit into and how salaries, dividends, and potential donations or inheritances will change.
For business owners and professionals in law or accounting, the message is even clearer: those who master the details of the reform will better protect their own assets and deliver greater value to their clients.
And you, in light of the income tax reform, have you started thinking about adjusting your investments and the way you receive profits and dividends, or do you plan to wait for the law to take effect before taking action?
-
-
2 pessoas reagiram a isso.