Navigating the Brazilian Tax Reform: Stay Ahead and Prepare for Change

Brazil Tax Reform fundamentally restructures the consumption tax system by introducing a dual VAT system to replace the current five-tax structure. What makes this reform particularly challenging is the extended transition period from 2026 to 2033, during which both tax systems will coexist.

Current system (until end of 2025):

• Federal level: PIS, COFINS, IPI
• State level: ICMS, ICMS-ST, FECOP, FECOP-ST, DIFAL, DIFAL-ST
• Municipal level: ISS

New dual VAT system (starting from 2026):

• Federal level: CBS (Contribution on Goods and Services)
• State/Municipal level: IBS (Tax on Goods and Services)
• Additional selective taxes: IS (Selective Tax) and continued IPI for Free Trade Zones

CBS replaces PIS and COFINS at federal level according to the reform schedule.

Key milestones start in 2026, with a phased transition through 2033.

ICMS and ISS continue during the transition while CBS and IBS are introduced, so systems should support both models until full implementation.

Monitor rollout timing, sector reductions and exemptions, treatment of credits and invoice data requirements as complementary rules are finalized.

Tax is assessed where the good or service is consumed rather than where it originates. This can shift tax burden across regions and may require updates to pricing and logistics.

Companies should work with their trusted tax advisors to monitor regulatory changes in Brazil and determine appropriate changes needed in internal tax compliance processes.