Brazil’s Tax Reform and Its Impact on Electronic Invoicing

Introduction of Dual VAT System:Brazil has enacted a tax reform consolidating five taxes into two new ones, the Goods and Services Tax (IBS) for states and municipalities and the Contribution on Goods and Services (CBS) at the federal level, forming a dual VAT system.
Key Features of CBS and IBS:Both taxes will have a broad base covering all transactions, a destination-based taxation approach, non-cumulative structures for immediate credit generation, uniform legislation, transparent rate application, and quick credit refunds to promote economic growth.
Transition Period:The reform includes a general seven-year transition period (2026-2033) to phase out existing taxes and implement the new system, with specific adjustments to rates for the IBS and reductions for ICMS and ISS over this timeframe.
Goals of the Reform:The reform aims to promote sustainable economic growth, create a fairer tax system to reduce social and regional inequalities, and simplify the tax system to enhance transparency and fiscal responsibility.
New Compliance Requirements: The reform will replace existing fiscal codes with new Tax Situation Codes (CST) and introduce the Declaration of Service Provision (DPS) to improve service reporting and compliance, requiring updates to taxpayer and software systems.