Countdown to Brazil´s Tax Reform: How to Prepare for the Transition Period?

Written by: Sonia Marques Döbler and Thaís Silveira Araújo

The taxation of goods and services in Brazil has always been at the center of political debates, both due to the undeniable complexity of Brazilian legislation and the impact that the tax burden and fiscal obligations impose on companies’ practices.

For many years, tax reform was a recurring topic, reflecting society’s desire for a simpler and more efficient system. While a step forward was made with the approval of Constitutional Amendment (EC) No. 132/2023, doubts remain about whether the model approved by the Federal Government will meet expectations in simplifying Brazil’s consumption tax system.

EC No. 132/2023, along with the recently approved Complementary Law (LC) No. 214/2025, concentrated consumption taxation into a dual Value Added Tax (VAT) model by establishing the Contribution on Goods and Services (CBS), under federal jurisdiction, and the Tax on Goods and Services (IBS), which will be collected by an IBS Managing Committee with equal representation from the States, Federal District, and Municipalities. In addition to CBS and IBS, the law creates a Selective Tax (“Sin Tax” – IS), designed for non-revenue purposes, which will be imposed on the production, sale, or importation of goods and services deemed harmful to health or the environment.

This new legislative framework will be implemented gradually, with a transition period set to occur between 2026 and 2032. During this time, the current consumption taxes — namely, the Tax on Industrialized Products (IPI) and PIS and COFINS contributions at the federal level, the Tax on Circulation of Goods and Services (ICMS) at the state level, and the Tax on Services of Any Nature (ISS) at the municipal level — will coexist with the new system, requiring taxpayers to remain attentive and diligent throughout the entire process.

As 2026 approaches, this article aims to explore the key actions companies can take to prepare for and comply with Brazil’s Tax Reform during the transition period.

• 2026: Beginning of the Transition

In 2026, taxpayers will continue to collect the current consumption taxes, notably ICMS, ISS, PIS, COFINS, and IPI in 2026. However, transactions involving goods and services will also be subject to a 1% test rate under the dual VAT system, with 0.9% CBS and 0.1% IBS. It is important to note that the Selective Tax (IS) will only begin to be charged starting in 2027.

The CBS and IBS test rates must be recorded on invoices and assessed in the corresponding tax ancillary obligations. Additionally, the amounts paid in 2026 for these new taxes may be offset, if they follow the preferential order set forth in Article 345 of LC 214/2025 – first against PIS/COFINS contribution debts, then other federal taxes, or, if no such debts exist, they may be reimbursed to the taxpayer.

Note, however, that CBS and IBS payments will not be mandatory next year. According to Article 348, §1º, of LC 214/2025, taxpayers who comply with their tax obligations in 2026 will be exempt from paying the new taxes throughout the respective calendar year.

The regulation makes it crucial for companies to adjust their internal systems to ensure compliance with ancillary obligations. These adjustments will not only allow effective preparation but may also help minimize the potential tax burden from the test rate on transactions carried out in 2026.

2) 2026: Invoices, Split Payment, and Tax Assessment

Companies must adapt their invoice and tax systems to include the test rate of the dual VAT (i.e., CBS and IBS), without compromising the assessment and postings of existing taxes.

For this reason, the Management Committee for Electronic Invoices issued Technical Note 2024.002 to update the invoice layout and include specific fields related to CBS, IBS, and IS taxation. These modifications encompass tax rates and adjustments in determining the Tax Authorities responsible for collecting payments, due to the new destination-based regime introduced by the Tax Reform.

The new invoice layout will be implemented throughout 2025, with a test environment available on September 1, 2025, and mandatory use beginning on October 31, 2025. This means companies will need to update their invoice systems to meet the requirements of Technical Note 2024.002, while also integrating them with new tax obligations related to CBS, IBS, and IS assessment, which are still subject to pending legislative approval.

Furthermore, companies’ systems must reflect the new tax collection system introduced by the reform, known as split payment. According to Articles 31 to 35 of LC 214/2025, electronic payment operators must segregate the IBS and CBS rates from the total transaction value at the moment of the financial settlement. The entire process will be automated through the linkage of invoice data with the payment method, ensuring that the tax amounts are immediately allocated.

The split payment method will initially be applied to transactions conducted by payment systems from financial institutions, primarily affecting the retail sector. However, the new legislation allows taxpayers to opt for the split payment procedure for the monthly assessment of IBS and CBS taxes. As the mechanism is still subject to regulation by the IBS Management Committee and the Brazilian Federal Revenue Office (RFB), it is possible that this method will become mandatory for other types of good and services supplies.

While further regulation is still pending, it is certain that split payment will bring IBS and CBS assessments closer to a cash basis regime, unlike the current taxes, which follow the accrual basis. Consequently, this new tax payment model will require the integration of invoicing and payment systems, along with necessary adjustments to companies’ financial management.

Nevertheless, the transition process extends beyond adapting tax and accounting software; it also demands a thorough review of internal processes.

• 2026: Internal Process Review

Maintaining efficiency without compromising compliance during the tax reform transition requires a comprehensive view of business operations, rather than focusing solely on tax routines.

An example is the new assessment method for consumption taxes. According to Article 42 of LC 214/2025, IBS and CBS credits and debits will be consolidated for the establishments of a same taxpayer. This centralized system differs from the current autonomy model applied to IPI, ICMS, and ISS, which could impact companies’ structuring and influence decisions on opening or closing branches.

In fact, the entire business model may be influenced by the tax reform, as consumption taxation affects the pricing of goods and services commercialized by companies. Considering that Article 12 of LC 214/2025 established that IBS and CBS are now excluded from the value of the transaction and will be collected separately, this scenario creates opportunities for cost and price renegotiation, and even for contractual review with suppliers and clients.

In this context, training and development are essential practices to address the changes brought by the Brazilian Tax Reform and should not be limited to a company’s tax department. It is advisable to involve different employees, as strategic decisions must consider the broader impact of the new rules. Preparation should be a continuous effort within the business environment, particularly as many key aspects of the new tax legal system remain uncertain.

• Brazilian Tax Reform: Next Steps

Several important aspects of the Brazilian Tax Reform are still awaiting definition, with the most significant being the standard IBS and CBS rates. A resolution from the Federal Senate will determine the taxation applicable from 2033 onwards, after the transition period. However, it is expected that the combined rates could reach 28%, positioning Brazil as the country with the highest consumption tax under the VAT model.

Additionally, 2025 is expected to see the approval of other important Tax Reform regulations. Among them is Complementary Bill (PLP) 108/2024, which establishes the IBS Management Committee, along with specific regulations for each of the new taxes, special regimes, and the maintenance of existing tax credits — a crucial matter for business organization.

All of this highlights that preparing for the Brazilian Tax Reform is a dynamic process. Companies need to adapt their operations in a planned manner while maintaining flexibility to handle potential developments. In this context, specialized legal advice is a fundamental tool to ensure a successful transition to the new consumption tax system.