Brazil Enacts 2026 Income Tax Overhaul, Lifting Exemption to R$5,000

Overview

• The reform takes effect on January 1, 2026, eliminating IRPF for monthly incomes up to R$5,000 and cutting tax for those earning R$5,000.01 to R$7,350, with no change above that range.
• Government projections indicate about 16 million people will pay less, and the Finance Ministry expects roughly 10 million fewer income tax filers in 2026.
• The 2026 revenue loss is estimated at R$31.2 billion, offset by R$34.1 billion expected from a new high‑income minimum tax and a 10% withholding on large dividend distributions and remittances abroad.
• The minimum tax targets individuals earning more than R$50,000 per month (R$600,000 per year) with progressive rates up to 10% only above R$1.2 million per year, affecting about 141,000 contributors.
• The law specifies exclusions from the minimum‑tax base, such as certain real‑estate gains, exempt pensions and indemnities, and LCI/LCA investments, and mandates automatic FPE/FPM transfers to protect state and municipal revenues.