TL; DR
With the approval of Constitutional Amendment No. 132/2023 and Complementary Law No. 214/2025, Brazil is entering a new tax era by replacing five complex consumption taxes with a modern dual VAT system, mirroring structures adopted in other large federal economies, such as Canada and India.
For companies operating in or with Brazil, this change is not a routine tax adjustment.
It is a structural transformation that will influence pricing, supply chains, contractual arrangements, financial flows, ERP architecture, and long-term investment decisions.
The transition will begin in January 2026 and will continue until 2033, but preparation must start now, as businesses will need time to assess the impact on their operations, upgrade systems, revisit supply chains and adjust to the new VAT compliance model.
A Single VAT Base for a More Predictable Environment
One of the most impactful features of the reform is represented by the introduction of a single, broad and uniform tax base for both new VATs: CBS (Federal) and IBS (State and Municipal).
This unified base covers:
- goods;
- services;
- intangibles and digital supplies;
- rights;
- real estate transactions (including residential rentals and sales); and
- and, uniquely, spread-based financial services.
This is unprecedented globally. Unlike most VAT systems, which typically exempt or partially exclude financial services, Brazil will bring spread-based financial services fully within the VAT base. This includes, for example, interest margins generated by lending activities, fees embedded in payment services, asset management spreads, and remuneration linked to the intermediation or administration of financial resources.
For businesses, this broader and uniform scope translates into greater clarity and fewer disputes on classification. Activities that were previously subject to different treatments depending on their legal form, location or contractual structure (such as bundled financial and non-financial services, platform-based payment solutions, or financing components embedded in commercial transactions) will now fall under a consistent VAT framework nationwide. This reduces uncertainty across Brazil’s 27 states and more than 5,000 municipalities and limits the risk of divergent interpretations that have historically driven litigation.
Destination-Based Taxation: A New Logic for Supply Chains
Under the new model, VAT applies where consumption occur, not where the supplier is located. This shift affects:
- interstate transactions;
- cross-border digital services;
- B2C operations;
- platform-mediated supplies;
- logistics and delivery models; and
- contracts that define place of performance and delivery.
Companies will need to revise distribution models, contractual terms and invoicing flows to ensure correct tax allocation under the destination principle.
VAT Neutrality: Ending Tax Cascading
The dual VAT is fully non-cumulative, addressing one of the most problematic aspects of the current system. Under CBS/IBS:
- input VAT becomes broadly recoverable;
- export credits are preserved;
- refund deadlines are clear (30 to 180 days); and
- credits are monetarily updated if refunds are delayed.
For many companies (particularly in manufacturing, retail, logistics and technology) this can significantly improve cash flow, pricing competitiveness and investment capacity.
A Digital First VAT: Split Payment and E-Documentation
The reform brings a major digital shift.
Brazil will introduce a split payment mechanism that withholds VAT directly at settlement of the financial transaction. Combined with enhanced national digital tax documentation, the objective is to reduce fraud, protect the credit chain, simplify reconciliation, and modernise compliance obligations.
Treasury workflows, ERP structures and financial processes will need to adapt significantly.
Transition Timeline: What to Expect Between 2026 and 2033
The reform introduces a phased transition that will gradually reshape Brazil’s consumption tax landscape over seven years:
- In 2026, CBS and IBS will be launched at symbolic test rates, giving businesses an opportunity to adjust systems and internal processes without immediate financial impact.
- In 2027, PIS and COFINS will be fully replaced by CBS, while the Selective Tax becomes operational.
- Between 2028 and 2032, ICMS and ISS will be progressively reduced through annual adjustments that companies will need to monitor closely.
- By 2033, the legacy taxes will be completely phased out and the dual VAT system will be fully implemented. This staged approach provides time to adapt, but also demands early planning to avoid operational disruptions and ensure a smooth transition.
Why Businesses Should Act Now
Preparing early is not simply a compliance measure. It is a strategic decision that can create long-term advantages.
Early movers will be able to:
- identify cost savings and credit optimisation opportunities;
- prepare systems and processes without rushed implementation;
- anticipate cash-flow effects;
- minimise risks during transitional years;
- strengthen their competitive positioning; and
- avoid disputes and penalties under the new regime.
With the introduction of destination-based rules, new digital obligations, split payment and new sectoral inclusion (such as financial services and real estate), companies that delay may face operational bottlenecks, system misalignments and unexpected tax exposures.
Call to Action: Start Preparing for the New VAT Era Today
The reform is ambitious. The transition is long. But the need to act is immediate.
To begin preparing, businesses should prioritise three steps:
1. Conduct a CBS/IBS Readiness Assessmen: Evaluate how the dual-VAT affects your supply chain, pricing structure, invoicing, treasury and ERP architecture.
2. Develop an Implementation Roadmap: Map out system upgrades, contract reviews, data requirements, tax credit management and internal training programs.
3. Rely on Experienced Advisors: Working with specialists who understand both the Brazilian context and global VAT practices is essential to ensure a smooth, compliant and value-generating transition.
At NOEMA Global, we help organisations navigate every stage of the transition to the new CBS and IBS framework, from early impact assessments and operational planning to system implementation, tax modelling and ongoing digital VAT compliance.
This is the right moment to define your transition strategy, strengthen internal readiness, and anticipate the practical challenges ahead.
Our team is ready to support you in navigating Brazil’s evolving VAT landscape with clarity, confidence and precision. Let’s discuss it together!
