Brazilian Tax Reform 2025: Key Changes, Benefits & Transition Details

February 26, 2025

On January 16, 2025, Complementary Law No. 214/2025 was published regulating Brazilian tax reform.

The text originates from Complementary Bill (PLP) 68/2024, approved in December by the National Congress.

Main Changes

Unification of Taxes: The reform unifies five taxes (ICMS, ISS, IPI, PIS, and Cofins) into a single charge (dual VAT), divided into:

-CBS (Contribution on Goods and Services): A federal tax replacing PIS and Cofins.

-IBS (Tax on Goods and Services): State and municipal taxes replacing ICMS and ISS.

-IS (Selective Tax): Replacing IPI.

Transition Period:

The reform will be introduced gradually with a seven-year transition period from 2026 to 2033.

During this period, companies will deal with the current and new system.

By 2029, the IS will be fully charged, and by 2033, the CBS and IBS will also be fully charged.

Fixing the rates

The reference rate of the IBS and CBS, which will be established in a future law, should be around 28% of the price of the product or service consumed.

However, each federative entity may set its own rate, respecting the reference limit.

Benefits

Certain product categories and services, such as medicines, hygiene products and intellectual profession, may have reduced VAT rates or exemptions.

The national basic food basket, consisting of 26 items, will be fully exempt from VAT (zero rate).

Specific/favored tax regimes

Some segments will receive specific treatment, such as fuels taxed at uniform rates, financial services which will have specific rates, credit rules and different calculation basis.

Split payment

The split payment consists of the fact that at the time of payment to the seller, the amount of tax (IBS and CBS) due to the authorities will be automatically separated and transferred to the government at the time of financial settlement of the transaction.

This makes the process safer and simpler, reducing the possibility of tax evasion.

Proposed Bill

In a short time, we already had a proposed bill (PLP 16/2025) by Federal Deputies to clarify that ICMS, ISS and IPI do not apply to the calculation basis of IBS and CBS (gross up systematic).

Regulation of Tax Reform

Complementary law no. 214/2025 should also be regulated by decrees, thus allowing any doubtful points to be clarified.

What is Brazil’s tax reform, and when was it approved?

Brazil’s tax reform was approved through Complementary Law No. 214/2025, published on January 16, 2025. It originates from Complementary Bill (PLP) 68/2024, which was passed by Congress in December 2024.

What are the main changes introduced by the tax reform?

The reform unifies five existing taxes (ICMS, ISS, IPI, PIS, and Cofins) into a dual VAT system, introducing CBS (federal tax), IBS (state and municipal tax), and IS (Selective Tax).

How long is the transition period for the new tax system?

The transition will last seven years, from 2026 to 2033. The IS tax will be fully implemented by 2029, while CBS and IBS will be fully charged by 2033.

What are the expected VAT rates under the new system?

The reference VAT rate for IBS and CBS is expected to be around 28%, but each federative entity can set its own rate within defined limits.

Will any products or services receive tax exemptions or reductions?

Yes, some products and services, including medicines, hygiene products, and intellectual professions, may have reduced VAT rates. The national basic food basket (26 items) will have a zero tax rate.

What is the split payment system, and how does it work?

Under split payment, taxes (IBS and CBS) are automatically separated and transferred to the government at the time of financial settlement, reducing tax evasion.

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Fabio Barbour is a Tax Consultant with more than 20 years of experience in strategic tax planning and tax consultancy, working in direct and indirect taxes, in the technology, software, consultancy, industrial, agribusiness and retail segments. Graduated in Law from Universidade Paulista. Postgraduate in Tax Law from FMU. Specialization in Accounting and Tax Planning from PUC-SP. Specialization in VAT Europe by the IBFD (International Bureau of Fiscal Documentation). Fabio Barbour