🇧🇷 Tax Reform: Income Reform

Hey, I’m Douglas, Editor-in-Chief of the Brazilian Tax Reform Portal 🇧🇷.

1) Lula sanctions Income Tax Reform in Brazil

The President of Brazil, Luiz Inácio Lula da Silva (PT), has sanctioned the Income Tax Reform Bill (Bill 1,087 of 2025). The main point of the bill is the Income Tax exemption for those earning up to R$ 5,000 (about US$ 880) per month (R$ 60,000 per year / about US$ 10,500), with the possibility of tax discounts for earnings between R$ 5,000.01 and R$ 7,350 (approximately US$ 880 to US$ 1,290)

The bill was approved by the Chamber of Deputies in October 2025 and by the Senate in November 2025. The measure will allow President Lula to fulfill one of his main campaign promises, on the eve of the presidential elections. 

Understand the changes in the Income Tax reform:

• Exemption up to R$ 5,000 (about US$ 880): The proposal, developed by Lula’s economic team, will take effect in 2026, the year in which the president will seek reelection. According to the Ministry of Finance, 20 million Brazilians will be exempt from income tax, with half of them already not paying the tax before the reform;

• Tax discount: Those earning between R$ 5,000.01 and R$ 7,350 per month will receive a progressive income tax discount, creating a smooth transition to avoid disincentives to increasing earnings. The deduction will follow the formula 978.62 – (0.133145 × taxable income). The initial proposal granted discounts only up to R$ 7,000 per month;

• Minimum Tax (R$ 600,000 to R$ 1.2 million — about US$ 105,000 to US$ 210,000): The income bracket above R$ 600,000 per year will face a gradual Minimum Tax, calculated using the formula (taxable annual income – 600,000) / 600,000 × 10%. Those earning exactly R$ 600,000 per year under the CLT (Brazil’s Consolidation of Labor Laws) will not be affected, since income tax in this case is withheld directly from the payroll;

• Minimum Tax (from R$ 1.2 million onward — from about US$ 210,000): Individuals earning more than R$ 1.2 million per year will pay the full 10% Minimum Tax, which represents an additional charge compared to the current model, which tends to tax high incomes below that threshold.

About Income Tax: In Brazil, Income Tax works like a staircase: the higher the income, the higher the tax rate. The tax is progressive and applies to salaries, investments, and other earnings.

For those who work under a formal employment contract, the tax is withheld at source. For others, an annual tax return is required, in which the taxpayer reports income, deductible expenses, and calculates whether they must pay additional tax or receive a refund.

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🇧🇷🔍 Brazil is changing. Are you watching closely?

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