Brazil’s consumption tax reform in 2026–2027

If you are still mapping Brazil onto a U.S. sales tax or the VAT Directive, start with the comparative note for American and European counsel. This briefing is the working map of the statute and the calendar.

Brazil is replacing five consumption taxes with a dual value-added tax and a selective excise. The constitutional design was enacted in December 2023. The operative statute, Complementary Law No. 214 of 16 January 2025, has 544 articles and has already been amended. The test year is underway. The first hard cut-over is 1 January 2027, when PIS and Cofins cease to exist.

Foreign groups consistently under-price three facts. First, 2026 is not the year in which the tax burden changes; it is the year in which systems, invoices and credit ledgers are stress-tested. Second, the federal layer of the new model arrives in full in 2027, years before the state and municipal layer. Third, legacy PIS and Cofins credits survive the extinction of those contributions only if they are properly booked by 31 December 2026. That last point is already producing compliance reviews by the Federal Revenue Service.

This briefing is a working map, not a treatise. It states what is in force, what is estimated, and what remains to be fixed by Senate resolution or further regulation. Where a figure is still political, it is labelled as such.

Why this briefing, and why now

The reform is already in the invoice. Treating 2026 as a quiet year before a 2033 “VAT day” is the error that shows up later as a rejected NF-e, a weak credit, or a contract written for the old base.

The architecture: dual VAT plus a selective excise

The reform does not create a single national VAT. It creates two taxes that share a common base, a common invoice and, in principle, common credit rules, plus a third instrument with a regulatory purpose.

Feature	CBS	IBS	Selective Tax (IS)
Nature	Federal social contribution	Shared state, Federal District and municipal tax	Federal excise
Replaces	PIS and Cofins	ICMS and ISS	Part of the regulatory role of IPI
Administered by	Federal Revenue Service (RFB)	IBS Steering Committee (CGIBS)	Federal Revenue Service
Constitutional basis	CF/88, art. 195, V	CF/88, art. 156-A	CF/88, art. 153, VIII
Full collection	2027	2033 (test rates from 2026)	2027

Source: Constitutional Amendment 132/2023 and Complementary Law 214/2025.

CBS and IBS are designed as a dual VAT. They are levied on a tax-exclusive base (calculated “on top” of the price, not embedded in it). They follow the destination principle for the subnational component. They grant a broad input credit, subject to the conditions discussed below. The Selective Tax is not a VAT. It is a single-stage excise on goods and services treated as harmful to health or to the environment, and it enters the CBS and IBS bases.

IPI is not formally extinguished. From 2027 its rates fall to zero nationwide, except for products whose industrialisation is incentivised in the Manaus Free Trade Zone and that compete with goods produced there. The Zone therefore remains a structural exception inside the new map.

What disappears, and on which clock

Current tax	Outcome	Successor	Effective date
PIS	Extinguished	CBS	1 January 2027
Cofins	Extinguished	CBS	1 January 2027
IPI	Rates reduced to zero (Manaus exception)	Coexists with the Selective Tax; not replaced as such	1 January 2027
ICMS	Phased down, then extinguished	IBS	Phase-down 2029–2032; extinction 2033
ISS	Phased down, then extinguished	IBS	Phase-down 2029–2032; extinction 2033

The extinction of PIS and Cofins is conditioned on the institution of CBS. That condition was satisfied by LC 214/2025.

Corporate income tax (IRPJ), the social contribution on net profit (CSLL), payroll contributions, IOF (other than the insurance component that is withdrawn in 2027), ITCMD, ITBI and IPTU are outside this briefing. The reform now in force is a consumption-tax reform. Income-tax redesign, if it comes, will be a separate statute.

The transition calendar, year by year

The old and new systems coexist for seven years. Treating the reform as a single “go-live” in 2026 is the most common error in foreign coverage.

2026 — test year

CBS is highlighted at 0.9 percent and IBS at 0.1 percent (state component only in this year). The combined test rate is therefore 1.0 percent. Collection is waived for taxpayers that comply with the ancillary obligations. Amounts that are in fact collected may be offset against PIS and Cofins or refunded. From August 2026, electronic invoices in the regular regime that omit the IBS/CBS group are rejected. The year exists to force systems, master data and invoice layouts into production, not to raise cash for the Treasury.

2027 — the federal cut-over

Three events occur on the same day. PIS and Cofins are extinguished. CBS is collected at its full reference rate, reduced by 0.1 percentage point in 2027 and 2028 to offset the residual IBS test rate. The Selective Tax begins. IPI rates fall to zero, subject to the Manaus exception. IBS remains at a test level: 0.05 percent state plus 0.05 percent municipal in 2027 and 2028. For any group that today lives on non-cumulative PIS and Cofins, this is the year that changes the federal cash cycle.

2029 to 2032 — the subnational phase-in

ICMS and ISS rates, and the tax benefits attached to them, are reduced in four steps: nine-tenths, eight-tenths, seven-tenths and six-tenths. IBS rises in the same proportion. Origin-based state incentives that still shape plant location decisions lose legal force on this schedule. Contracts that assumed a permanent ICMS benefit need a reopening clause before 2029, not after.

2033 — full dual VAT

ICMS and ISS are extinguished. CBS and IBS operate at their full reference rates. Compensation arrangements for states continue for decades after that date; they matter to public finance, not to the ordinary taxpayer’s return.

Year	What changes in practice
2026	Invoice fields live. Test rates. No intended increase in burden if ancillary obligations are met.
2027	PIS/Cofins off. Full CBS. Selective Tax on. IPI at zero (Manaus exception). IBS still symbolic.
2028	Same federal picture. Split payment expected to move from optional B2B toward mandatory use as payment institutions connect.
2029–32	ICMS and ISS decline by one-tenth of the original rate each year. IBS occupies the space they leave.
2033	Single dual-VAT map. Destination principle in full. Old subnational taxes gone.

Design principles that change pricing, contracts and credits

Destination, not origin

IBS is due to the state and municipality of consumption, not to the jurisdiction where the supplier is established. A São Paulo manufacturer shipping to a customer in Recife allocates the IBS component to Pernambuco and to the destination municipality. The “fiscal war” of ICMS incentives cannot survive that rule. CBS, being federal, has no interstate split, but it shares the same taxable event and the same invoice.

A tax-exclusive base

PIS, Cofins, ICMS and ISS were, in the main, calculated “from within” the price. CBS and IBS are calculated “on top”. A headline comparison between a 9.25 percent PIS/Cofins rate and a CBS reference rate near 9.2 percent is therefore misleading until the bases are equalised. In commercial negotiations, list prices, gross-up clauses and pass-through language written for the old taxes will not travel.

Broad non-cumulativity, with a new condition

The regular regime grants a credit on acquisitions tied to the economic activity, including goods and services that the old PIS/Cofins case law treated as controversial under the “essentiality or relevance” test (STJ Theme 779). Personal use and consumption remain outside the credit. The structural novelty is Article 47 of LC 214/2025: appropriation of the credit is, as a rule, conditioned on the extinction of the tax due on the prior supply. Extinction may occur by payment, by split payment, by collection by the acquirer, or by offset.

Article 48 suspends that condition while neither split payment nor collection by the acquirer has been implemented. In that window, credit follows a correct highlight on a valid electronic invoice. The Federal Revenue Service has indicated that mandatory B2B split payment is unlikely before 2028. Until the mechanism is live, groups should assume that invoice quality, not bank settlement, is the credit gate. Once it is live, cash received by the supplier will be net of tax, and the buyer’s credit will follow the settlement trail.

Exports out, imports in

Exports of goods and services are relieved (immunity or zero-rate, depending on the operation). The foreign-exchange inbound documentation that Brazilian banks already require remains the practical evidence pack. Imports of goods and of services, including digital supplies to Brazilian customers, enter the dual VAT. Non-resident suppliers that today treat Brazil as an ISS or CIDE problem will need a CBS/IBS analysis for remote B2B and B2C supplies.

Rates: what is known, and what is still political

LC 214/2025 does not lock the full reference rates. Those rates are to be set by Federal Senate resolution so that the combined burden approximates the current consumption-tax take, subject to a statutory ceiling of 26.5 percent. In August 2026 the IBS Steering Committee published a working estimate of 27.91 percent (CBS 9.21 percent plus IBS 18.7 percent) for planning the Committee’s own 2027 budget. That figure is not the Senate resolution. If the estimated sum exceeds 26.5 percent, the federal Executive must send Congress a complementary bill with measures to bring the rate back to the cap.

Until the Senate acts, models should be run on a range, not on a single cell. A combined rate in the high 20s is the working assumption in most professional material. Sectoral reductions, specific regimes and the Selective Tax will move any given product or service well away from that average.

Reductions from the standard rate are written into the statute and are not optional planning tools. A 30 percent reduction applies to an exhaustive list of eighteen regulated professions (law, engineering, accounting and others), subject to conditions on the partners’ credentials and on the corporate object. A 60 percent reduction applies to listed education and health services, certain medicines and devices, selected foods and agricultural inputs. A zero rate applies to the National Basic Food Basket and to specified medicines and devices. Real estate, financial services, bars and restaurants, fuels and other sectors have specific regimes of their own, with distinct bases and, in several cases, restricted credits. Foreign counsel should not assume that a European reduced-rate analogue exists for every Brazilian sector.

Cashback and the social layer

Low-income households registered in Cadastro Único receive a partial refund of CBS and IBS on consumption evidenced by electronic invoices. The refund is 100 percent of CBS and 20 percent of IBS on cooking gas (cylinders up to 13 kg), piped gas, electricity, water, sewage and telecommunications, and 20 percent of both taxes on other purchases. This mechanism does not change the rate charged at the point of sale. It matters to retail groups because invoice completeness and CPF capture become a social-policy interface, not only a tax-compliance field.

Legacy PIS and Cofins credits: the 2026 closing problem

This is the item that most directly affects groups already in the non-cumulative PIS/Cofins regime, and the item on which Brazilian controversy is concentrated.

Articles 378 and following of LC 214/2025 provide that PIS and Cofins credits, including presumed credits, that have not been appropriated or used by the date of extinction remain valid. They keep their original limitation period. They must be recorded in the bookkeeping environment of those contributions (EFD-Contribuições). After 1 January 2027 they may be offset against CBS, refunded in cash, or offset against other federal taxes, provided the legal conditions that applied on the extinction date, and the conditions applicable on the date of the request, are both met.

Credits that were being appropriated over time through depreciation, amortisation or monthly quotas continue as presumed CBS credits. Goods returned after 1 January 2027 in respect of pre-2027 sales generate a CBS credit equal to the PIS and Cofins that burdened the original supply, usable only against CBS. Inventories on hand at the cut-over may generate a presumed CBS credit in the cases set out in Article 381, appropriated in instalments.

Two operational warnings follow.

• The Federal Revenue Service has already publicly identified material divergences in declared PIS/Cofins credit balances and has instructed taxpayers to regularise EFD-Contribuições before the cut-over. A credit that exists in a spreadsheet but not in the digital bookkeeping file is a weak credit.
• Brazilian administrative practice on untimely credits (crédito extemporâneo) still requires rectification of the original period. Cosit rulings from 2017 onward reject the idea that Article 3, paragraph 4, of Laws 10.637/2002 and 10.833/2003 authorises a taxpayer to drop an old credit into the current month. The limitation period that the Revenue applies is the five-year period of Decree 20.910/1932. Groups that intend to clean the ledger in 2026 should treat rectification and documentation as the path, not a year-end journal entry.

Split payment and working capital

Under Articles 31 to 35 of LC 214/2025, the tax portion of an electronic payment may be segregated at settlement and remitted directly to the RFB (CBS) and to CGIBS (IBS). The supplier receives the net amount. Cash and cheque, which cannot be split by a payment institution, fall under collection by the acquirer (Article 36).

In 2027 the mechanism is expected to start as an optional B2B tool, payment rail by payment rail (internal transfers, then TED, then boleto and Pix; cards later, together with B2C). Mandatory use depends on the connection of more than two hundred payment institutions and is publicly expected in 2028 rather than on 1 January 2027. Finance directors should model two states: a 2027 year in which the company still receives gross and remits tax on the ordinary due date, and a later year in which a growing share of receipts arrives already net of CBS and IBS. Working-capital facilities sized on the old gross inflow will be wrong in the second state.

What this means for a foreign-headed group

The legal change is national. The operational change is local to each Brazilian entity’s invoice engine, master data, intercompany contracts and credit file. The following list is a minimum agenda for a holding company that has Brazilian subsidiaries, a Brazilian PE, or a remote supply into Brazil.

• Confirm that every Brazilian entity in the regular regime is issuing electronic invoices with a complete IBS/CBS group. Rejection of the invoice is now an operational failure, not a tax debate.
• Rebuild pricing models on a tax-exclusive base. Equalise old “inside” rates before comparing them with CBS and IBS.
• Re-open customer and supplier contracts that lock a tax clause, a gross-up, a list price or an ICMS benefit through 2027 and beyond.
• Map which SKUs and service codes fall under the standard rate, a 30 or 60 percent reduction, a zero rate, the Selective Tax, or a specific regime. Do not assume the European reduced-rate list.
• Close the PIS/Cofins credit file in 2026: support, EFD-Contribuições integrity, untimely credits via rectification, inventories, and fixed-asset appropriation schedules.
• Decide the CBS/IBS posture of Simples Nacional entities. The statute allows an option into the regular regime for the new taxes while remaining in Simples for other taxes. That option is a modelling exercise, not a slogan.
• Identify remote supplies into Brazil (software, SaaS, intra-group services, digital advertising) and test whether the non-resident is drawn into CBS/IBS as supplier or whether the Brazilian customer withholds or self-assesses.
• Stress-test treasury for split payment: days sales outstanding, gross versus net receipts, and the date on which large Brazilian buyers are likely to demand the mechanism because their own credit will depend on it.
• Keep a watching brief on the Senate resolution that will fix the reference rates, and on any complementary bill triggered if the estimate remains above 26.5 percent.
• Do not wait for 2033 to model ICMS benefit cliffs. The phase-down begins in 2029, and site-location decisions have a longer lead time than the statute.

In summary

Brazil is moving from five stacked consumption taxes to a dual VAT (CBS federal, IBS subnational) and a selective excise. The test year is 2026. The federal cut-over is 1 January 2027. The subnational cut-over is 1 January 2033. Rates are not yet fixed by the Senate; professional estimates cluster near 28 percent combined, against a statutory cap of 26.5 percent. Credits become broader in law and stricter in cash, because they will eventually follow extinction of the prior-stage tax. PIS and Cofins credits survive only if they are booked correctly before those contributions die. Exports remain relieved. Imports and digital supplies into Brazil do not.

For a foreign board, the reform is not an abstract modernisation. It is a 2026 documentation project, a 2027 federal cash-cycle project, and a 2029 contractual project on state incentives. The groups that treat those three dates as one event will discover the difference in the invoice rejection log, in the credit ledger, or in a customer’s split-payment mandate.