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Brazil is in the midst of one of its most significant tax reforms in decades, aimed at simplifying the country’s complex system of indirect taxes and moving toward a modern value-added tax (VAT) structure. After years of negotiation and legislative debate, the reform — anchored in Constitutional Amendment No. 132/23 and further regulated by Supplementary Law 214/2025 — began its phased implementation on January 1, 2026.

At the heart of the overhaul is the consolidation of Brazil’s numerous consumption taxes into a dual VAT system. Under the new framework:

A federal VAT-style tax, known as the Contribuição sobre Bens e Serviços (CBS), will replace existing federal consumption levies including PIS, Cofins, and IPI.
A state and municipal VAT-style tax, the Imposto sobre Bens e Serviços (IBS), will replace the current ICMS (state VAT) and ISS (services tax).
Both CBS and IBS are designed to function similarly to VAT systems used in other international markets, charging tax at each stage of production and distribution while allowing credits for taxes paid earlier in the chain.

The reform’s rollout will be gradual — spanning from 2026 to 2033 — with the new taxes initially applied at test rates in 2026 alongside existing levies, and a full migration expected by the end of the decade. This transition period aims to give businesses time to adapt their systems, pricing, and compliance processes to the new regime.

For foreign investors and companies operating in or entering Brazil, the VAT reform presents both challenges and opportunities: while compliance requirements and reporting systems will change, the move toward a more transparent and unified tax structure could ultimately reduce complexity and make the Brazilian market more attractive for long-term investment.

Sources
https://www.ciat.org/three-innovations-in-brazils-value-added-tax-reform/?lang=en
https://www.policycenter.ma/publications/tax-reform-brazil