by Edmo Colnaghi Neves (PhD), Murray Advogados, Brazil

Tax reform is underway in Brazil. It is a process of profound changes that will take many years to complete; most of the reform will be completed by 2033.

This process aims to simplify a very complex tax system since the country is a Federation in which the Federal Union, 26 states, the Federal District and more than 5,500 municipalities produce tax laws on five different types of taxes.

The tax reform to date has focused on the taxation of transactions involving goods and services and is inspired by international VAT practices. However, it will not be as simple as it may seem at first glance.

Since it is a Federation, it was necessary to create a DUAL VAT, in other words, there will be a federal VAT and a VAT for states and municipalities.

The federal one will be called CBS (contribution on goods and services) and will come into full force in 2027, but in 2026 there will already be a partial charge. When it comes into effect, PIS/COFINS contributions will disappear and IPI will be largely reduced to a zero rate.

The state and municipal tax will be called IBS (Tax on Goods and Services) and will be charged at higher rates each year starting in 2026, while the ISS (Tax on Services) and ICMS (Tax on the Circulation of Goods and Services) charges will be reduced simultaneously, until these taxes are eliminated in 2033.

It is worth noting that the Reform created a new federal tax popularly known as the sin tax, the IS – selective tax, which will be levied on products that are harmful to human health, such as cigarettes, or that are harmful to the environment.

Another new feature worth mentioning in the Tax Reform is the creation of the “split payment” system in which banks and payment platforms, upon receiving payment from the purchaser to the supplier, will mediate the transfer of the amount, sending the tax amount to the Tax Authorities.

The Reform began with constitutional amendment 132/23, in 2025 complementary law 214/25 was published (with more than 500 articles), other complementary laws, ordinary laws and decrees will be necessary in the coming years and companies will need to adapt and follow this profound change in the national tax system.

We remain at your entire disposal for further clarification.