In 2026, the Brazilian federal government initiated a large-scale modernization of the country’s tax system.
For many years, Brazil’s tax framework has been considered one of the most complex in the world, with taxes levied at multiple levels—federal, state, and municipal. This resulted in significant administrative burdens and additional costs for businesses.
With the introduction of a modern, internationally oriented tax system, the government aims to improve simplicity, efficiency, and the overall attractiveness of investing and doing business in Brazil.
A New System Based on VAT Principles
Historically, Brazil’s tax system developed as a combination of numerous individual taxes and regulations across different levels of government. As a result, companies were subject to multiple consumption taxes, including PIS, COFINS, IPI, ICMS, and ISS.
These taxes were collected by different authorities and each had its own rules, reporting requirements, and administrative obligations.
In practice, this meant that companies often:
- had to file multiple tax returns
- dealt with different rules depending on the state or municipality
- paid taxes at multiple stages of the production chain
This created a high administrative burden and made it difficult, particularly for foreign companies, to fully understand the fiscal structure.
A New System Based on VAT Principles
The reform introduces a new model that more closely resembles the value-added tax (VAT) systems used in many other countries.
The new system consists of two main components:
- CBS (Contribution on Goods and Services) – a federal tax on goods and services
- IBS (Tax on Goods and Services) – a tax levied at the state and municipal levels
Together, these taxes will replace a large portion of the existing consumption taxes. In addition, a selective tax (IS) will be introduced for goods considered harmful to health or the environment, such as alcohol or certain raw materials.
The new model follows VAT principles, meaning that companies pay tax on the value added at each stage of the production chain, while previously paid taxes can be offset through tax credits.
This system is generally regarded as more transparent and efficient.
A Gradual Transition
The reform will not be implemented all at once. Instead, a phased transition has been introduced.
Implementation begins in 2026 with a testing phase, during which companies are required to report under the new system alongside the existing one.
In the following years, the current taxes will be gradually phased out. The new system is expected to be fully operational by around 2033, when the existing consumption taxes will be completely eliminated.
During this transition period, companies will need to operate under both systems simultaneously.
What Does This Mean for Foreign Companies?
For international businesses, the reform represents a significant long-term improvement.
Key advantages include:
- greater transparency in the tax structure
- reduced cumulative taxation in production chains
- alignment with international VAT models
- less tax competition between states when attracting investments
At the same time, the transition period introduces challenges. Companies will need to adapt their administrative processes, invoicing systems, and ERP infrastructure to accommodate both the current and the new tax systems.
Conclusion
Brazil’s tax reform is one of the most significant economic reforms in recent decades. Its objective is to create a simpler, more transparent system that is better aligned with international standards.
For companies operating in Brazil—or planning to enter the market—the fiscal landscape will gradually evolve over the coming years. With proper preparation, however, this reform also presents opportunities, as doing business in Brazil is expected to become more predictable and efficient over time.