Tax reform: a new chapter for Brazil

In my previous post, I delved into the complexities of Brazil's tax landscape and the challenges businesses face. Today, I'm excited to share a significant development: the enactment of Complementary Law 214/2025, which marks a new era for Brazil's consumption tax system.

Signed by President Luiz Inácio Lula da Silva on January 16, 2025, this landmark legislation aims to simplify and modernize the tax structure by replacing the current four VAT taxes (PIS, Cofins, ICMS and ISS) with two new, unified taxes – the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS). To provide additional clarity, let’s highlight a few key points of the reform.

A phased approach for smooth transition

Recognizing the magnitude of this change, the reform wisely adopts a gradual implementation approach. Pilot rates for the new IBS and CBS taxes will be introduced in 2026, with a full rollout by 2033. This phased transition allows businesses and consumers to adapt progressively, minimizing disruption.

A focus on social equity

A key aspect of this reform is its focus on social equity. Two key measures demonstrate this commitment:

• Cashback system: Aimed at alleviating the tax burden on low-income families, this innovative program will provide financial relief to those who need it most.
• Essential food exemption: The "National Basic Basket" of essential food items will be exempt from taxes, ensuring affordability and accessibility for all Brazilians. This exemption, coupled with the anticipated reduction in effective tax rates, has the potential to significantly improve the quality of life for low-income families by boosting their purchasing power.

Standardization and flexibility

While specific tax rates will be established by further legislation, the government anticipates a standard rate capped at 26.5%. Additionally, pre-established reductions of 100% (exemption), 30% or 60% are planned for certain economic sectors and National Basic Basket products. This standardization will bring clarity and predictability to the tax environment. These measures aim to foster targeted economic growth and address regional inequalities.

The road ahead

The enactment of Complementary Law 214/2025 marks a pivotal moment for Brazil's tax landscape. While some regulations regarding the full implementation of IBS and CBS are still pending, the overall direction is clear: a more simplified, transparent and equitable tax system.

As businesses navigate this evolving tax landscape, it's crucial to have the right tools and expertise. Vertex, a leading global provider of indirect tax technology, helps organizations understand the implications of reforms and maintain compliance. Our solutions streamline tax calculations, simplify filings and keep businesses informed about regulatory changes.

I will continue to closely monitor the next steps and provide updates on the evolving regulatory landscape and its impact on businesses operating in Brazil.