A massive overhaul will transform one of world’s most complex tax systems, but the transition period poses unprecedented challenges for businesses.
Brazil is embarking on its most comprehensive tax transformation in decades with the approval of the Reforma Tributária in January 2025. The sweeping reform will replace the country’s notoriously complex web of federal, state, and municipal taxes with a streamlined dual VAT system over an eight-year implementation period from 2026 to 2033.
Currently ranked among the world’s most complex tax regimes, Brazil’s existing system has created what government officials acknowledge as high compliance costs, elevated litigation, poor competitiveness, and widespread confusion among businesses trying to meet their tax obligations.
A Complete System Overhaul
This transformation will result in Brazil having an expected tax rate of 28 percent, the highest among major world economies. With over 5,570 municipalities each potentially having different implementation requirements, accurate tax determination will become more critical than ever for business competitiveness.
The Challenge of Dual Compliance
Perhaps the most daunting aspect of the reform lies in its gradual implementation. Beginning in 2026, businesses will face the unprecedented challenge of complying with both the old and new tax systems simultaneously during the transition years.
The CBS will launch in 2027, fully replacing PIS and COFINS while the selective tax takes effect. The most complex phase runs from 2029 to 2033, when IBS will gradually replace ICMS and ISS over five years, starting at just 10 percent in 2029 and reaching full implementation by 2033.