13/02/2025
On January 16, 2025, the President of Brazil signed Complementary Law Project No. 68/2024, which was converted into Complementary Law No. 214/2025, regulating the Tax Reform on consumption. This new law brings major changes to Brazil’s tax system, aiming to simplify taxation and ensure more transparency and fairness for businesses and taxpayers.
Key Highlights of the Regulation
- IBS and CBS: The regulation introduces a transition to a Value Added Tax (VAT) model with two main taxes. The Goods and Services Tax (IBS) will replace ICMS and ISS, shared between States, Municipalities, and the Federal District. The Contribution on Goods and Services (CBS), a federal tax, will replace PIS, COFINS, IOF-Insurance, and IPI.
- Non-Cumulativity: The new tax model fully embraces the principle of non-cumulativity, allowing businesses to offset taxes paid at earlier stages of the production chain against taxes due at later stages. This change aims to reduce economic distortions and increase transparency in consumption tax collection.
- Selective Tax: The Selective Tax will be applied to products considered harmful to health and the environment, with higher rates on items like sugary beverages. In contrast, medicines will benefit from lower tax rates, balancing tax revenue with policies aimed at improving access to healthcare.
Tax Rates – Impact and Outlook
The Ministry of Finance initially projected a general rate of around 26.5% for the new tax system. However, with recent changes, this rate is now expected to exceed 28%. Still, the law stipulates that if the total tax rates surpass 26.5% in 2031, the government must propose adjustments to keep them within this limit.
Stay Updated with Our Newsletter
The Tax Reform is set to bring significant changes to Brazil’s business landscape. To keep our clients informed and prepared, we have launched “L.O. na Reforma,” a dedicated newsletter tracking the development of the reform and its impacts across various industries.
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Authored by Tiago Zonta Guerreiro.
