Brazil’s Historic Tax Reform: Dual VAT System Awaits Presidential Signature

Earlier this year, the Brazilian government announced its plans to undergo a historic tax reform and replace the complex indirect tax system with a more simplified "Dual VAT" system. The proposition included eliminating several taxes and establishing a new system consisting of federal consumption tax and state and local taxes.

The Brazilian government is taking further steps towards implementing the plan and changing its inefficient and complicated tax regime.

Recent Developments and Future Steps

The Chamber of Deputies, which had already approved tax reform to change the indirect tax system, approved Complementary Law 68/24 from the Executive Branch. This Law includes the rules and regulations essential for implementing complete tax reform. The Senate had previously changed and approved the Complementary Law, thus requiring a new approval by the Chamber of Deputies.

The law includes a provision for establishing a new dual VAT system and details on a new tax on products considered harmful to human health or the environment. Cigarettes, alcoholic beverages, and sweetened beverages are among the products that fall under this category.

Under the approved Law, the overall consumption tax rate will be 26.5%, which aligns with the previously announced plans.

The approved Law has now been sent to the President of Brazil for approval and signature. Once signed, it will officially become Law, marking a significant step in the tax reform of Latin America's largest economy.

Conclusion

Brazil is on its way to completing one of the most significant changes to its national tax system, completely changing how the VAT system works. Should this government succeed in its intentions, it would mark a massive milestone since previous governments have attempted and failed in that endeavor.

The reform is not only significant for local taxable persons since the implementation of dual VAT will affect non-resident digital service providers that will have to collect and remit VAT on their Brazilian supplies under the new regime.

Source: Chamber of Deputies, VATabout, Reuters