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

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.