Brazil: Amendments to indirect tax reform adopted

Brazil has advanced another step in its indirect tax reform with the approval of PLP 108/2024 (awaiting presidential sanction), which complements the reforms previously approved under Complementary Law No. 214/2025. Together, these laws form the core legislative framework for Brazil’s new dual value added tax (VAT) system.

Background

Complementary Law No. 214/2025, adopted in early 2025, consolidates multiple federal, state, and municipal consumption taxes into a dual VAT system, introducing two new taxes:

• Contribution on goods and services (CBS) at the federal level
• Goods and services tax (IBS) at the state and municipal levels

The reform aims to simplify tax compliance, reduce economic distortions, and enhance legal certainty and predictability for taxpayers. The transition to the new system begins in 2026 and will be completed by 2033.

Complementary law derived from PLP 108/2024

The complementary law enacted from PLP 108/2024 constitutes the second major legislative pillar of the indirect tax reform. It establishes the Committee for the Management of the Tax on Goods and Services (CGIBS) and introduces binding technical and operational amendments to Complementary Law No. 214/2025, forming an integrated statutory framework for the administration of IBS and its coordination with CBS.

Governance and institutional structure

• The law formally establishes CGIBS, defining its legal nature, governance model, funding, and administrative authority.
• CGIBS is responsible for the centralized administration, collection coordination, and revenue distribution of the IBS among states and municipalities.
• The committee is granted binding regulatory and interpretative powers within its statutory mandate.

Key substantive changes and clarifications

Technical corrections and legal clarity

• Editorial and cross-referencing errors across multiple provisions were corrected.
• Ambiguities in core concepts—such as leasing arrangements and temporary transfers of goods—were clarified to ensure consistent tax treatment nationwide.

Taxpayer protections and legal certainty

• Rules were enacted for determining the taxable event in recurring, continuous, or fractional transactions.
• Provisions were established for credit recognition, reversals, and adjustments in cases involving prepayments, cancellations, or contract modifications.
• These measures aim to reduce litigation risk during both the transition and post-transition phases.

Sector-specific adjustments

• Energy sector: Refined rules for free-market energy consumers and energy imports, including structured deferral mechanisms for IBS and CBS
• Digital platforms: Clarification of tax compliance responsibilities, including optional tax substitution models for platforms acting on behalf of suppliers
• Real estate: Objective thresholds defining when individuals engaged in leasing or renting activities qualify as regular taxpayers
• Financial services: Adjustments to tax bases and deductions, including provisions for zero-rating certain imported financial services under specific conditions
• Fuel and lubricants: Introduction of anti-fraud mechanisms for fuel derivatives and transitional flexibility for natural gas taxation
• Hospitality and entertainment: Alignment of tax treatment for hotels, amusement parks, and theme parks with the regime applicable to bars and restaurants

Tax equity and simplification

• Cashback mechanism: Enhancements to ensure the effective return of IBS and CBS to low-income households, particularly for essential utilities
• Simples Nacional: Rules allowing small businesses to opt into the regular regime and clarifying credit treatment in transactions involving Simples taxpayers
• Nano-entrepreneurs: Extension of tax exemptions for app-based drivers to include taxi drivers and similar service providers

Transition and implementation

• Gradual implementation rules for selective taxes on sugary beverages, aligning them with alcohol and tobacco to mitigate abrupt tax impacts
• Refined transition provisions for real estate and financial services to enhance legal certainty during the coexistence of old and new tax systems
• Compensation of ICMS credits using IBS collection

Compliance, administration, and enforcement

• The law formally creates the National Tax Compliance Program (PNCT), integrating IBS and CBS compliance frameworks to promote transparency and cooperative compliance.
• Provisions were enacted for the unification of the Electronic Tax Domicile (DTE) for IBS, with the possibility of future integration with CBS systems.
• Harmonized rules on infractions, penalties, and administrative procedures were extended across IBS and CBS to ensure systemic consistency.

Government purchases, split payment, and Manaus Free Trade Zone (ZFM)

• Adjustments were enacted to clarify the tax treatment of government procurements and the operational mechanics of split payment systems.
• Specific rules were refined for the Manaus Free Trade Zone (ZFM) to preserve its constitutional tax incentives, including tailored split payment arrangements.

Judicial and administrative harmonization

• The law introduced mechanisms to integrate IBS and CBS dispute resolution processes, including coordinated administrative appeals and uniform interpretative standards.
• These provisions aim to reduce fragmentation and ensure consistent application of the new tax rules across jurisdictions.

Pending regulatory developments

While the legislative framework for IBS and CBS is now largely defined through Complementary Laws No. 214/2025 and the law derived from PLP 108/2024, key operational aspects still depend on forthcoming regulations. Detailed rules are expected to be issued through:

• CGIBS normative acts (for IBS)
• Federal executive regulations (for CBS)

These regulations will be essential to clarify compliance procedures, reporting obligations, system integrations, and practical application of several concepts introduced at the statutory level.

Additional legislative developments

Under Complementary Law 214/2025 and PLP 108/2024, Brazil's tax reform does not specifically exclude IBS and CBS from the bases of other taxes under the current regime. In this respect, for ICMS, São Paulo’s authorities state that in 2026—considered a testing period—IBS and CBS will not be included in its calculation, but they are likely to be integrated once fully effective, based on traditional “transaction value.” Regarding the federal PIS and Cofins, their phase-out starting in 2027 and replacement by CBS renders the inclusion debate largely irrelevant.

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