After the National Congress approved Bill 68/2024 on 1 January 2025, the regulatory framework for the tax reform was enacted by the Presidential Office through Complementary Law 214/2025 (LC).
This law stipulates the application of three new taxes devised by the Brazilian tax reform to replace the existing ones—PIS, Cofins, IPI¹ , ICMS, and ISS. These are the Tax on Goods and Services (IBS), the Contribution on Goods and Services (CBS), and the Selective Tax (IS).
The LC defines the taxable base for IBS and CBS as encompassing transactions involving tangible and intangible goods, rights, and services.
Differing from certain existing taxes, IBS operates under state and municipal jurisdiction while CBS falls under federal oversight. Neither tax will calculate its base independently but will adhere to the destination-based rates. A key change is their adherence to absolute non-cumulativity, ensuring that all input taxes paid can be fully credited upon debt settlement at the destination, irrespective of the use—administrative or operational—of the goods or services. The only exclusion is purchases for personal use.
A standard rate applies generally, with specific goods, services, or sectors potentially subject to a maximum combined rate of IBS and CBS at 26.5%. The CBS rate is to be set by the Federal Union, while the IBS rate is to be determined by adding the rates from the state and municipality where the goods or services are destined.
Specialized or preferential tax regimes also exist for CBS and IBS, acknowledging the complexity involved in taxing certain sectors:
In the latest update to the country’s tax regulations, low-income families will receive a refund of IBS and CBS through a cashback system.
The Selective Tax (IS) targets the production, extraction, marketing, or importation of goods and services deemed harmful to health or the environment. Such items include coal, vehicles, ships, aircraft, products that generate smoke (for signaling, camouflage, or fumigation), alcoholic beverages, sugary drinks, mineral products, betting games (regulated lotteries), and fantasy sports.
The IS will not be levied on transactions related to electricity, telecommunications, and goods and services that benefit from a 60% reduced rate.
Glossary:
National Congress (Brazil) – The federal legislative body of Brazil, responsible for creating and amending laws. It consists of two houses – the Federal Senate and the Chamber of Deputies.
Bill 68/2024 – A legislative proposal that was approved by the National Congress, leading to changes in the Brazilian tax system.
Complementary Law 214/2025 (LC) – A type of legislation in Brazil that complements the Federal Constitution, addressing specific matters and requiring a higher quorum for approval than ordinary laws.
PIS (Social Integration Program) – A contribution in Brazil that funds the unemployment benefit program and the participation in the revenue of entities and funds.
Cofins (Contribution for the Financing of Social Security) – A federal tax in Brazil on business revenue, used to finance the social security system.
IPI (Tax on Industrialized Products) – A federal tax in Brazil applied to the production and importation of industrialized products.
ICMS (Tax on Circulation of Goods and Services) – A state tax in Brazil on the circulation of goods, interstate and intercity transportation, and communication services, regardless of their origin.
ISS (Tax on Services) – A municipal tax in Brazil on the provision of services, excluding those subject to ICMS.
Tax on Goods and Services (IBS) – A proposed tax in Brazil intended to unify several taxes into a single value-added tax on goods and services.
Contribution on Goods and Services (CBS) – A proposed federal tax in Brazil that would replace PIS and Cofins, applying to revenues earned from the provision of services and the sale of goods.
Selective Tax (IS) – A proposed selective tax on specific goods and services considered harmful to health or the environment.
Absolute non-cumulativity – A tax principle where every tax payment generates a credit for subsequent payments, preventing the cascade effect of taxes on taxes.
Federal Union – The union of states and municipalities, including the Federal District, that forms the Federative Republic of Brazil.
Qualified Domestic Minimum Top-up Tax (QDMTT) – As part of the GloBE Rules under the OECD, it’s a supplementary tax a country may impose to ensure a minimum taxation level on income earned within its jurisdiction.
¹Except for goods produced in the Manaus Free Zone, to preserve the competitiveness of products from this incentivized area.
