Brazil´s tax reform in consumption: an introduction

GVM abogados - Over the past years, Brazil’s complex tax system — particularly its taxation on consumption — has been a notorious source of inefficiencies, legal uncertainty, and high compliance costs. The country’s multi-layered indirect tax regime, with overlapping federal, state, and municipal taxes, has often been cited as a major obstacle to business, investment, and economic growth.

In December 2023, Brazil marked a turning point by enacting Constitutional Amendment No. 132/2023, which introduced a comprehensive reform of the national consumption tax system. This long-awaited reform reshapes the way goods and services are taxed in the country and aims to simplify, harmonize, and modernize Brazil’s tax environment.

At the heart of the reform is the replacement of five existing taxes — the federal PIS and COFINS, the federal IPI, the state ICMS, and the municipal ISS — with two new taxes structured under a dual VAT model: the CBS (Contribution on Goods and Services) at the federal level and the IBS (Tax on Goods and Services) shared by states and municipalities. Additionally, a Selective Tax will apply to certain goods and services, following the rationale of discouraging consumption of products harmful to health or the environment.

Both CBS and IBS are designed to cover a wide range of goods and services, adopting a non-cumulative structure and adhering to the destination principle — meaning taxes will be collected where consumption occurs, not where production or sale takes place.

Although the reform was formally established by Constitutional Amendment No. 132/2023, its implementation will be phased in over time and depends on further regulatory developments. The regulatory process began with the enactment of Complementary Law No. 214 in January 2025, but other legislative measures are still required to complete the framework. A transition period, set to begin in 2026, will allow companies and tax authorities to adjust gradually, with the full system expected to be operational by 2033.

For both domestic and international businesses, the reform promises a more transparent, predictable, and efficient tax system. Yet, considering the scope of the changes, ongoing attention to regulatory updates and legislative adjustments will be essential in the years ahead.

At GVM, we are closely monitoring the progress of Brazil’s tax reform and its potential practical implications for cross-border transactions, supply chains, structure of business and investments. Through this monthly column, we will share key insights into the key aspects of the reform, aiming to support businesses in navigating this significant transition. In our next article, we will address the transition rules and the key differences between the current tax system and the new VAT model.

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