On 16 January 2025, the final text of Supplementary Law No. 214/2025, which regulates the Brazilian tax reform on consumption/indirect taxes, was enacted. The reform significantly changes the way Brazil taxes goods and services, replacing several of the current “indirect taxes”, including PIS, COFINS, IPI, ICMS and ISS, by three new taxes: the Goods and Services Tax (IBS), the Contribution on Goods and Services (CBS) and the Selective Tax (IS).
Main characteristics of IBS and CBS
The federal contributions PIS/COFINS will be gradually replaced by a unified tax called CBS. ISS and ICMS will be gradually replaced by another unified tax named IBS. Both CBS and IBS will apply to transactions involving tangible and intangible goods, including rights, services, and non-habitual imports.
The reform introduces a dual-VAT system, aiming to streamline the complexity inherent in the existing Brazilian tax framework. According to studies from the Ministry of Finance, the combined rates for CBS and IBS are anticipated to be approximately 28%.
Main characteristics of IS
While CBS and IBS will operate under a dual-VAT model, IS will be an excise tax levied on specific products considered harmful to health or the environment, such as cigarettes, alcoholic beverages, certain sugary drinks, and lottery products.
Transitional Schedule of the Tax Reform
The new tax system is scheduled to begin in 2026, with full implementation by 2033. The transition period will run from 2026 to 2033.
The first year (2026) will serve as a testing phase for the system and calibration of rates. During this period, the IBS will be introduced at a symbolic rate of 0.1% and the CBS at a rate of 0.9%, both charged concurrently with the existing taxes and subjected to offsetting mechanisms.
In 2027, CBS will fully replace PIS/COFINS, with a standard rate still to be determined. This rate will be reduced by 0.1 percentage points for taxable events occurring in 2027 and 2028. From 2029, the rates of ICMS and ISS will begin to decrease gradually until their full elimination in 2033. Simultaneously, IBS rates will be increased proportionally.
Additionally, regulatory measures – such as the operational system for split payment – will be enacted to further detail and operational clarity.
Final considerations
The tax reform is expected to simplify consumption taxation for both businesses and consumers, without increasing the overall tax burden, as the new system will allow for full credit recovery. InterGest Brazil and its experienced team are ready to support you and your company in navigating the tax reform and ensuring a smooth and compliant transition throughout the implementation period.
