This blog was last updated on September 2, 2025
What is IBS? The Tax Reform is in full swing in Brazil and one of the pillars of this transformation is the creation of the Tax on Goods and Services (IBS).
Inspired by the Value Added Tax (VAT) model, widely used in several countries, the IBS promises to simplify and modernize the Brazilian tax system, considered one of the most complex in the world.
Dual VAT
The IBS, together with CBS, forms the dual VAT. This means that VAT will be shared between the federal government and subnational governments (states and municipalities), each with its own share of the tax, but applied on the same calculation basis.
Why was a dual model chosen?
Mainly, to respect the Brazilian federative pact: states and municipalities rely heavily on ICMS and ISS revenues; therefore, maintaining some tax autonomy was politically necessary.
Although there is a single calculation base, each federal entity maintains jurisdiction over its share of VAT.
What is IBS?
The IBS is a tax with shared competence between States, Federal District and Municipalities,which will replace taxes levied on consumption today. It will be non-cumulative and will apply to goods, services and rights, and will be charged at the destination (place of consumption), and not at the origin (place of production) as it is so far with the ICMS.
Tributes that will be replaced by IBS:
- ICMS (Tax on Circulation of Goods and Provision of Interstate and Intercity Transportation and Communication Services) — state
- ISSQN (Tax on Services of any kind) — municipal
In addition to the IBS, the Reform also provides for the creation of the Contribution on Goods and Services (CBS), under federal competence,which will replace:
- PIS (Social Integration Program)
- Cofins (Contribution to Social Security Financing)
Together, IBS and CBS make up the new consumer tax model in Brazil, inspired by international VAT.
Why is IBS important?
The introduction of the IBS aims to reduce Brazilian tax complexity, responsible for a lack of interest in foreign investment in the country, increase transparency and promote greater tax justice. It is relevant because:
- Simplification and standardization
To date, each state and municipality may have different rules for ICMS and ISSQN. The concept that comes with the IBS is that of unifying and simplifying rules, with a single legislation and standardized rates. - Transparency for the consumer
With the IBS, it will be easier to know how much tax is embedded in the final price of a product or service, since it is not part of the calculation base itself, as is currently the case in the ICMS, which favors the population’s tax awareness. - End of the fiscal war
Destination collection is intended to reduce the fiscal war in which states and municipalities offer tax benefits to attract and retain companies in their location for the purpose of generating jobs and revenues, which should equalize competition and benefit the country as a whole. - Reducing the cost of compliance
Companies currently invest a lot of money, time and resources to deal with obligations ancillary to all existing taxes. With the IBS, it is intended to minimize bureaucracy and generate more operational efficiency, centralizing all necessary information only in the tax document and providing an “on time” assessment. - More attractive business environment
The simplification of the system makes Brazil more internationally competitive, encouraging investment and economic growth. With less tax complexity, the country provides greater clarity on costs, creating credibility for foreign investors.
When does IBS take effect?
Implementation will be gradual. According to Supplementary Law 214/2025, which establishes the Tax Reform:
- 2026 to 2032: Transition period, with coexistence between current and new taxes (CBS and IBS).
- 2033: New system fully implemented.
The Tax Reform and the creation of the IBS represent a historic change in the Brazilian tax system. By replacing old taxes with a modern one, inspired by VAT, the country is moving towards a fairer, more efficient model aligned with the best international practices. For companies, it means greater predictability, lower compliance costs, and new technological and operational adaptation challenges.
With the entry into force of the IBS, it will be essential that tax organizations and professionals are prepared to navigate this new tax era with strategy and innovation.
How can Sovos help?
Sovos is at the forefront of tax transformation in Brazil and around the world, offering complete tax compliance and tax automation solutions. With robust technology, continuous updating to regulations, and integration with ERP and other systems, Sovos helps companies adapt to the changes brought about by the Tax Reform – such as the transition to IBS – in a secure, efficient and scalable way.
In addition, it has local specialists and ongoing support, ensuring that your company is always in compliance, regardless of the complexity of the tax landscape.
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