Brazil's tax reform: main changes you need to know

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In a historic move, the National Congress of Brazil promulgated the Constitutional Amendment (EC 132/2023) on Dec. 20, 2023, ushering in a comprehensive reform of the country's consumption taxes. This monumental decision represents the most significant transformation of the Brazilian tax system in its democratic history, concluding a debate that has spanned decades. 

The Reform represents a significant review of the current Brazilian tax system. Defenders bet that changes will bring simplification and eliminate sectoral and federative distortions, also reducing legal and administrative disputes. Although the implementation of the new model will be gradual, it is expected to significantly improve the business environment, increase productivity and boost investments in the country. 

The Constitutional Amendment presents an important break with the standards nowadays adopted for the structure of taxation over consumption, in a closer vision to the value-added taxes currently adopted in other countries. 

Here are some of the significant changes that have been introduced by the EC 132/23: 

Dual VAT 

The reform introduces a dual format value-added tax (VAT), shared competency between 2 taxing levels:  

  • Federal Level: Contribution on Goods and Services (CBS) replacing two federal taxes (PIS and COFINS). Note that differently from what was expected, the Tax on Industrialized Products (IPI) will be maintained with its incidence under zero rates as off 2027 (except for products manufactured in the Free Trade Zones). 
  • State Level: Tax on Goods and Services (IBS) replacing state and municipal taxes (ICMS and ISS). IBS will apply to domestic transactions with tangible or intangible goods/products, services, legal rights, and rental, as well as importing. Although the tax will uniform national legislation, each federative entity will be liable to set its own rate. 

Selective Tax (IS)  

Popularly called a “Sin Tax”, the Selective Tax (IS) will be required on the federal level for the production, extraction, trading or importing of goods and services considered as harmful to health or the environment. Taxation on specific items will be defined by subsequent complementary laws and cannot be cumulative with IPI. 


The new tax model aims to provide a comprehensive definition of a "taxable event" for the new taxes, without discrimination between products and services. This implies that from the tax owed, the deduction of the tax imposed on all acquisition transactions will be allowed – whether they involve tangible or intangible goods (including legal rights). In other words, it will put an end to the "cascade effect". 

It also establishes the "outside" tax charging regime, opposed to the current "gross-up" model. Taxes are charged at the destination of operation, rather than the current model that requires the origin. 

Tax rates 

It is estimated that the new dual VAT will have an accumulated standard rate (CBS + IBS) of around 26% to 27.5% in order to maintain the country's current tax burden. However, the exact percentage will only be known with the implementation of the new model. 

Tax reductions of 30% and 60% were created depending on the product/activity, such as health and educational services, medical devices and public transportation among others. Exemptions were established for some items, such as vegetables, fruits, eggs and those considered as part of the “national basic food basket” (to be defined by the Complimentary Law). 

Free Trade Zone 

The model maintained two benefited tax regimes established by the Federal Constitution – the Manaus Free Zone (FTZ) and "Simples Nacional" (SIMPLES). The amendment also established the Economic Sustainability Fund for the State of Amazonas, as well as the provision for creating a Fund for Sustainable Development for the States of the Western Amazon and Amapá State. 

Special tax treatment/benefits 

There is also a specification for sectors that will have different taxation regimes, as their activities cannot be reconciled with the VAT model (such as fuels, financial services, cooperative societies, hosteling services and others). Moreover, the Constitutional Amendment extended until 2032 with benefits granted related to presumed tax credits to automotive industries located in the North and Central West.  

Additionally, a “cashback” model was introduced consisting of tax refunds with the aim of reducing income inequalities. The criteria will be defined by complementary law. 


Although the Constitutional Amendment has immediate effects, nothing will actually happen immediately. The Tax Reform outlines a transition period for taxpayers with an expected duration of seven years starting in 2026 and lasting until 2032. PIS, COFINS, ICMS and ISS will coexist during the transition period and will be gradually replaced by ICM and CBS until the completion of the Tax Reform implementation as of 2033. 

Other taxes 

The text of the Constitutional Amendment went beyond matters related to indirect taxes. It brought a determination that the second stage of the reform, which dealt with taxes on income, be forwarded to the National Congress within 90 days. Motor Vehicle Ownership Tax (IPVA) also extended the incidence on boats, ships and aircrafts. Causa Mortis and Donation Transmission Tax (ITCMD) established progressiveness based on the share, legacy or donation and is now the responsibility of the State where the deceased person was domiciled or the donor was domiciled. 

Although the legislative process has been concluded with the publication of the Constitutional Amendment, it is important to note that the Reform still needs a lot of regulation to be effectively implemented. More than 70 Complementary Laws, in addition to ordinary laws and infra-legal acts, are expected to provide the necessary framework for the changes. Traditionally, many Complementary Laws required since the promulgation of the Federal Constitution in 1988 have not been published. Therefore, it is important to be cautious when making statements about the application or conclusion of the Tax Reform developments. Taxpayers must organize themselves to follow and discuss the complementary legislation that must now begin to be produced, as it will be crucial to the success of this historic Tax Reform. 

Blog Author

Industry Influencer Ana Maciel

Ana Maciel

Senior Manager, Tax Research

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Ana Maciel is a senior tax research manager responsible for new tax content that supports the Vertex Indirect Tax O Series solution in Brazil. Based in São Paulo, she has more than 24 years of experience in Brazilian indirect tax and has worked at Vertex for over 11 years. Previously, she worked as a tax advisor to multinational companies in Big 4 accounting firms. Ana holds a B.S. in law and a B.S. in business administration, as well as a post-graduate degree in international trade from Universidade Paulista.

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