- Legislation Approval: Brazil’s Senate approved legislation (PLP No. 68/2024) on December 17, 2024, to further regulate the VAT reform passed in December 2023.
- Dual VAT Implementation: Starting in 2026, Brazil will implement a dual VAT system consisting of a federal VAT (CBS) and a state/municipal VAT (IBS), along with a new federal excise tax (IS).
- Transition Period: The transition to the new VAT system will span seven years, allowing for adjustments and phased implementation.
- Standard and Reduced Rates: The maximum standard tax rate is 26.5%. Reduced rates include 70% of the standard rate for professional services and 40% for health services, medical devices, and educational services. Certain items, such as medicines and basic consumer products, will have a zero-rate.
- Test Rates Postponed: Effective payment of test rates for CBS (0.9%) and IBS (0.1%) is postponed to 2027. In 2026, companies must disclose these amounts on invoices for testing purposes without actual collection.
- Split Payment Regime: Payment system operators and digital platforms must enable split payments for transactions, particularly affecting retail transactions with end consumers who are non-taxpayers.
- Import and Export Tax Responsibilities: The legislation clarifies tax responsibilities for CBS and IBS on imports of intangibles and services, and maintains existing tax exemption requirements for service exports, with some additional classifications.
- VAT Registration for Foreign Sellers: Nonresident suppliers and digital platforms must register with Brazilian tax authorities to collect dual VAT, with specific provisions for transactions through digital platforms.
- Digital Platform Reporting and Liability: Digital platforms must report all transactions to tax authorities and the IBS steering committee. Platforms are liable for tax collection unless they fulfill specific reporting obligations.
- Selective Tax Introduction: A selective tax will be applied to certain goods and services, including vehicles, alcoholic beverages, and betting contests, starting January 2027. The bill awaits presidential approval and detailed regulations to be issued.
Timeline
- December 2023: VAT reform is initially passed.
- April 25, 2024: The Ministry of Finance submits draft legislation (PLP No. 68/2024) to Congress.
- July 10, 2024: The Chamber of Deputies (lower house of Congress) approves the draft legislation.
- December 17, 2024: Brazil’s Senate (upper house of Congress) approves the legislation.
- End of 2024: The bill is expected to be sent to the president for approval and enactment.
- Q1 2025: Expected publication of further regulations detailing operational aspects of the new tax system (e.g., tax returns, split payment regime, VAT registration for nonresidents).
- Q2 2025: Expected publication of ordinary laws and normative instructions, as well as approval of Bill No. 108/2024, which regulates the IBS steering committee and other related aspects.
- January 2026: Start of the transition period for the new VAT system.
- 2026: Test phase for CBS (0.9%) and IBS (0.1%) rates, with companies required to disclose these amounts on invoices, but no actual collection during this year.
- 2027: Effective collection of CBS and IBS test rates begins. Selective tax rules start in January 2027.
- 2026-2033: Seven-year transition period for the full implementation of the dual VAT system.
- By 2033: Full implementation of the dual VAT system is expected to be completed.
Source Deloitte
