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VAT in Brazil : approval of Tax Reform

On December 15th 2023, the lower house of Congress approved a landmark constitutional amendment of the Brazilian Tax Code.

The Tax reform aiming to simply the consumption levies in Brazil was debated since over 30 years despite its incontestable interest for the economic growth of the country through the reduction of the existing Tax compliance burdens.

The reform consists in replacing 5 consumption taxes, actually levied & overlapping at multiple levels, by a dual Value Added Tax :

  • federal rate (CBS)
  • regional rate (IBS)

Determinable through complementary bills, the both rates could jointly reach 27,5%.

Becoming one of the world’s highest VAT rates, it will still remain a few points below the actual taxation rate in Brazil.

Further changes

The Brazilian Tax reform also foresees some VAT reductions for specific first necessity goods & services, as well as a selective taxation of some actually exempted items and of some goods with a negative impact on health or environment.

Among the most important changes is the place of taxation rule which will replace the origine-based taxation by the consumption-based one (where the buyer lives or where the goods are handled over).  

The last modification involves many compensation measures to be adopted for different states.

Next steps

Already approved by deputies back in July 2023, the Tax reform bill had to undergo again the two-round vote due to changes made by the Senate in November. After last Friday’s approval, the reform should be now voted in law by the end of December.

The Tax reform will be progressively implemented in Brazil starting from 2026 until 2033.

The exception is made for the place of taxation rule which will require around 50 years for its full implementation.

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