This blog was last updated on August 26, 2025

After decades of debate, Brazil’s largest tax reform takes effect, requiring immediate preparation from companies. Understand the impacts, the schedule, and how to ensure compliance in the midst of eight years of transition.

Brazil’s biggest fiscal change has begun

After decades of discussion, the Tax Reform was finally approved in Brazil in January 2025. This is the most ambitious change ever made to the country’s tax system, with profound and lasting impacts for companies of all sizes and sectors.

The objective is clear: to simplify one of the most complex tax systems in the world. But the road there will be a long and challenging one. The transition will take place over eight years, with periods of overlap between the current model and the new regime. This requires companies to prepare in advance and adopt a strategic approach, supported by technology and local knowledge.

From a tangle of taxes to a dual VAT system

The reform proposal is to replace five main taxes with two new taxes based on value added (VAT):

• CBS (Contribution on Goods and Services): under federal competence.
• IBS (Goods and Services Tax): managed by states and municipalities.

These two taxes will replace PIS, COFINS, IPI, ICMS and ISS, reducing fragmentation and promoting more transparency and standardization in tax rules.

In addition, a Selective Tax will be created for products and services harmful to health or the environment – the so-called “sin tax”.

The schedule for the change: 2026 to 2033

The transition will take place in phases:

• 2026: CBS and IBS begin to be charged at symbolic rates; companies that comply with ancillary obligations may have initial exemption.
• 2027: CBS comes fully into force, with the extinction of PIS and COFINS. The Selective Tax takes effect at the federal level.
• 2029 to 2033: the IBS will gradually replace the ICMS and the ISS.
• 2033: complete implementation of the new system, with the end of the ICMS and the ISS.

For a considerable part of this period, companies will have to deal with two tax systems at the same time, doubling their operational, legal, and technological effort.

Simplification with transient complexity

Despite the promise of a simpler system, the transition will be turbulent. Savos experts warn that the years between 2026 and 2030 will be especially challenging, requiring investments in technology, review of processes, and constant adaptation to evolving standards.

• Recalculate taxes based on new and old rules simultaneously.
• Monitor complementary legislation and local regulations that are constantly updated.
• Navigate a scenario with more than 5,500 municipalities with different realities, challenging standardization.
• Manage a total tax rate estimated at 28%, placing Brazil among the countries with the highest tax burden, which puts pressure on tax teams to correct the calculation.

People, processes, and technology: the new compliance tripod

Tax Reform is a structural change. To address it, companies must:

• Map the tax impact on all operations, branches, and units.
• Engage internal teams, from IT to accounting, from sales to legal.
• Assess whether your e-invoicing infrastructure is ready for the new formats.
• Consider technological partners that provide visibility, automation, and continuous updating in the face of legal changes.

As we showed in our whitepaper “Brazilian Tax Reform: Preparing for Tax Reform and Eight Years of Drastic Changes”, which shares use cases and the vision of Sovos experts on what the reform really means for companies, only robust technology and local knowledge will allow us to overcome this transformation with confidence. Putting more people to do manual calculations is neither feasible nor sustainable.

Get ready now

Do you want to understand in detail how your company can prepare for the 2025 Tax Reform?

Download the Savos whitepaper and get access to an analysis of the new taxes, the implementation schedule, the impacts on systems and teams, and the essential steps to reduce operational and fiscal risks at this time of transformation.

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