Lula Signs Law Raising Income-Tax Exemption to R$5,000 Starting in 2026

Overview

• The law takes effect on January 1, 2026, creating full exemption up to R$5,000 a month and automatic discounts for monthly incomes between R$5,000.01 and R$7,350, with impacts on 2026 income filed in 2027.
• The government estimates roughly 15 million people will stop paying or will pay less, citing correction of a decade-long erosion in the income-tax table.
• Revenue offsets include a progressive minimum tax reaching 10% for annual incomes above R$600,000 and renewed taxation of dividends, with 10% withholding on distributions above R$50,000 per month from 2026 and 10% on remittances abroad.
• A transition preserves exemption for profits earned in 2025 if distributed by 2028, and the government says states and municipalities will be automatically compensated via FPE and FPM.
• Fiscal impacts are disputed: the Finance Ministry projects neutrality or a surplus after offsets, while the IFI estimates a R$1 billion annual loss and the Senate’s budget office projects a R$4 billion loss.