This blog was last updated on September 2, 2025

Tax Reform is quite complex, isn’t it? Would you like to have a glossary that easily explains your most common concepts?

Tax Reform is one of the most talked about issues in Brazil’s political, economic, and business scene. With the approval of Constitutional Amendment No. 132/2023 and the enactment of Supplementary Law 214/2025, the country begins a profound transformation in the consumer tax system.

But for many Brazilians – including professionals in areas such as finance, law, accounting, and technology – the terms used in the reform still raise doubts. For this reason, we prepared this glossary with the main concepts of Tax Reform, to help you and your team understand the changes in a clear, objective and legal way.

Tax Reform Glossary

• Tax Reform: The Brazilian Tax Reform consolidates Constitutional Amendment No. 132, enacted in December 2023, and is in the regulatory phase through supplementary bills from the Executive Branch. It consolidates five consumer taxes – PIS, Cofins, IPI, ICMS and ISSQN – into a Goods and Services Tax (IBS) and the Social Contribution on Goods and Services, with a dual model (federal CBS and state/municipal IBS), replacing the current fragmented system and simplifying ancillary obligations.
• VAT (Value Added Tax): A taxation model adopted in several countries, VAT is levied on value added at each stage of the production and marketing chain. It avoids cumulativity, that is, there is no collection of tax on tax.

In Brazil, the Reform adopts a dual VAT model.

• Dual VAT: System that separates collection between the Federal Government (federal government) and subnational entities (States and Municipalities). The Brazilian dual VAT will consist of:
• CBS — Social Contribution on Goods and Services (federal)
• IBS — Property and Services Tax (state and municipal)

Both are broad-based, non-cumulative and relate to goods, services, and rights.

• CBS (Social Contribution on Goods and Services): Federal tax that will replace the PIS and Cofins. It will be due to the Union and applied at a uniform rate for all operations.

Features

1. It focuses on gross revenue
2. Non-cumulative (allows the use of credits)
3. With a broad base and simplified rules

• IBS (Tax on Goods and Services): Tax of shared competence between States, Federal District and Municipalities, which will replace the ICMS (state) and the ISSQN (municipal).
• IBS highlights:
  • Broad incidence (goods, services, and rights)
  • Billing at the destination (where the consumption occurs)
  • Management through a national Steering Committee
  • Single legislation for the entire country

• IS (Selective Tax): New federal tax with regulatory function. The IS will be applied to products and services harmful to health or the environment, such as cigarettes, alcoholic beverages, and fossil fuels. It doesn’t generate credit for IBS and CBS.
• IBS Steering Committee: Public entity under a special regime created by Supplementary Law 214/2024 that will administer the IBS on behalf of States and Municipalities. It will have the following attributions:
  • Collect and distribute IBS revenue;
  • Establish operational standards through the edition of the IBS regulations;
  • Ensure the neutrality and transparency of the system. The committee will consist of 4 (four) representatives from the Federal Revenue Service and 2 (two) from the States and the Municipalities. The CG-IBS must be definitively established by the end of 2025 tocoordinate this transition.

• Transition regime: The change to the new model will be made gradually between 2026 and 2032, to avoid sudden impacts on taxpayers and federal entities. There will be two types of transition:
  • Transition for taxpayers:
    From 2026 to 2027: testing period and coexistence between the current and the new model (CBS and IBS with reduced rates).
    From 2029 to 2032: progressive reduction of ICMS, ISS, PIS and Cofins.
  • Transition to federal entities:
    Progressive distribution of IBS revenue;
    New distribution model between States and Municipalities based on consumption, not on origin.

• National standard invoice: The Reform provides for the creation of a unified electronic invoice model to simplify ancillary obligations and facilitate the control and supervision of taxes. Technical Note NT 2025.002-RTC determines the deployment of fields for use in calculating new taxes on 01/07/2025 in an approval environment and on 01/10/2025 in a production environment. The requirement for municipalities and the Federal District is scheduled for January 1, 2026.
• Broad credit: The dual VAT model allows companies to take advantage of credits on all purchases related to economic activity, including consumer goods, electricity, advertising and transportation services. This credit is essential to guarantee the real non-cumulativity of taxes.
• Reference rate: A standard rate will be defined for CBS and IBS, which may be adjusted according to the collection necessary to keep the tax burden stable. The sum of the rates (federal and subnational) is expected to be between 27% and 29%.
• Cashback: Instrument for the partial return of the tax paid by low-income people. Cashback seeks to promote greater tax equity, returning part of the tax paid on the consumption of essential goodsand services.
• Digital Tax Compliance: use of electronic systems (NF-e, SPED) for managing tax obligations, which will be simplified with tax unification.
• DIFAL (Rate Differential): mechanism that equalizes the ICMS burden in interstate transactions, a situation that will no longer exist in the reform, since the taxis due at the destination.
• Tax substitution: regime in which the person responsible for collecting the tax from the entire commercial chain is the sender of the merchandise, in principle, this institute will be disbanded under the new system.
• Tax at the destination: The IBS will be charged at the place where the good or service is consumed (destination), and not at the place of origin of the production. This change corrects distortions of the fiscal war and promotes more fairness in the distribution of revenue.
• Unification of ancillary obligations
  With the new model, a unified digital platform will be created to fulfill ancillary obligations. This includes:
  • Single invoice;
  • Centralized bookkeeping;
  • Automatic calculation of credits.
  • Result: less red tape and lower compliance costs for companies.

Why is knowing these terms essential?

Tax Reform is a game-changer in the Brazilian business environment. For companies, accountants, system developers, and decision makers, understanding the concepts involved is the first step in preparing strategically.

This glossary is a starting point for navigating this new tax landscape more safely. And, like any transformation, this one also brings opportunities – especially for those who are well informed and with adequate processes from the start.

How can Sovos help?

Sovos closely monitors each stage of the Tax Reform and offers complete solutions to ensure compliance and agility in your company’s tax processes.

With Sovos, you have:

• Real-time tax technology, already prepared for IBS, CBS and IS;
• Automatic monitoring of legal and technical updates;
• Platform that centralizes ancillary obligations and the issuance of tax documents;
• Team of local experts to support your transformation journey.

The transition is already under way, and it is urgent for companies to adapt. Get ready with those who understand tax compliance. Get in touch with us!