Brazil: Exclusion of goods from ICMS-ST regime starting in 2026 (São Paulo)
New regulation eliminates the upfront collection of VAT for a wide range of goods
Effective January 1, 2026, the state of São Paulo will remove hundreds of products from the ICMS tax substitution (ICMS-ST) regime. The change is required by the new Portaria SRE 64/25, which amends the previous Portaria CAT 68/19.
Understanding the shift in tax collection
The ICMS is the state-level value added tax (VAT) of São Paulo, and under the current ICMS-ST system, a single taxpayer early in the supply chain—typically the manufacturer or importer—is responsible for collecting and paying the ICMS tax for the entire chain, up to the final consumer. This simplifies tax administration for the state.
The new regulation eliminates the upfront collection of the ICMS for a wide range of goods such as food and beverages, medicines, auto parts, construction materials industries and various household products. Instead, tax will be collected at each stage of the supply chain.
The purpose of this change is to align the current ICMS collection system with the new tax reform that aims to reduce or eliminate the advance collection of the VAT by the states (tax substitution).
Impact on key industries
This change will have a major effect on the e-invoicing, tax collection and reporting obligations of several sectors importing, manufacturing or selling the above-mentioned products, as they will need to adapt their processes to the new tax system.
Companies will need to align their systems and workflows with the new requirements, minimizing disruption for full compliance ahead of the 2026 deadline.
KPMG observation
The transition to Brazil's new tax system is an evolving process. Discussions regarding tax reform are ongoing, and the guidelines and its interaction with the new taxes may be subject to further adjustments by the government to comply with future mandates or address technical issues.
For further information, contact a KPMG tax professional:
Paula Smith | ppsmith@kpmg.com
Atila Borba Vaccaro Pidoni Mota | atilamota@kpmg.com
Bruno Siqueira Peitl | bsiqueirapeitl@kpmg.com
Philippe Stephanny | philippestephanny@kpmg.com
Ramon Frias | ramonfrias@kpmg.com
Denis Scarassati | denisscarassati@kpmg.com