Brazil tax reform: Comprehensive preparation checklist for international corporate entities
Brazil’s ambitious tax reform, which introduces a dual VAT system (IBS and CBS), a new excise tax (IS), destination-based taxation, and a minimum corporate tax rate, represents the most significant fiscal shift in decades. For international companies operating in Brazil, this reform brings both challenges and opportunities. The transition will require not just technical compliance but also strategic adaptation across systems, processes, contracts, and talent. This checklist was crafted to help indirect tax professionals at multinational corporations navigate the “messy middle” of the transition process: moving from awareness to active evaluation and preparation. Use it as a practical guide to assess your organization’s readiness, avoid common pitfalls, and position your tax function as a strategic partner in the transition.
Understanding the reform framework
The Brazilian tax reform, enacted through Complementary Law No. 214/2025 on January 16, 2025, fundamentally transforms the indirect tax landscape by replacing multiple existing taxes with a dual VAT system. This reform replaces PIS, COFINS, ICMS, ISS, and modifies IPI into three primary taxes:
Key tax changes and timeline
Contribution on goods and services (CBS - Contribuição sobre bens e serviços): Replacing federal PIS and COFINS taxes, managed by the federal government.
Tax on goods and services (IBS- Imposto sobre bens e serviços): Replacing state ICMS and municipal ISS, managed by the Federative Council.
Selective tax (IS - Imposto seletivo): A modified version of IPI focusing on products harmful to health and environment.
Key legislative changes and implementation
Phased implementation: The transition to the new system begins in 2026 and will be completed by 2033, allowing businesses and governments time to adapt.
2026 – Testing period. CBS and IBS (rates 0.9% and 0.1%, respectively), offsetable with PIC/Cofins. Payment may be waived if ancillary obligations are fulfilled,” according to the Brazilian accounting firm, Domingues E Pinho Contadores (DPC).
2027 - “Selective Tax will come into effect. The federal CBS will be effectively collected, IS will be instituted, and the following taxes will be abolished: PIS and Cofins, IOF/Seguros, and IPI exemption (except for industrialized products in the Manaus Free Trade Zone),” according to DPC.
2027 to 2028 – “IBS Test: 0.05% State rate and 0.05% municipal rate, offset by the Union with a 0.1% reduction in the CBS rate,” according to DPC.
2029 to 2032 – “Transition from ICMS and ISS to IBS, with a 10% increase in IBS rates and a 10% reduction in ICMS and ISS rates: 10% in 2029 to 40% in 2032,” according to DPC.
2033 – Abolition of ICMS and ISS, and the full implementation of IBS and CBS, according to DPC.
Destination-based taxation: Taxes are now levied where goods and services are consumed, not where they are produced, aiming to reduce regional tax competition and distortions.
Social equity measures: The reform introduces a cashback program for low-income families and exempts essential food items from VAT, supporting affordability and social inclusion.
Non-cumulative system: Both CBS and IBS operate on a non-cumulative basis, allowing businesses to credit input taxes against output taxes, thus avoiding cascading taxation and simplifying compliance.
Exports exempt: Exports remain exempt from these taxes, with input credits available for exporters.
Combined standard rate for IBS and CBS: A crucial element of the reform is the establishment of a combined standard rate for IBS and CBS, estimated at 27.5% (with some sources noting initial rates up to 28%).
This rate is not arbitrary; it is calculated to maintain revenue neutrality-that is, to ensure the new system generates roughly the same amount of tax revenue as the five replaced taxes did during the period from 2012 to 2021.
What revenue neutrality means
Purpose: The 27.5% rate is designed so that the government’s overall tax intake does not decrease or increase significantly because of the reform. This stability is critical for public finances, allowing the government to fund services without sudden budget gaps or windfalls.
Calculation: The Ministry of Finance analyzed average tax collections from the five taxes being replaced over the 2012–2021 period. The new rate was set to match this historical average, ensuring a smooth fiscal transition.
Sectoral adjustments: Some sectors will benefit from a 40% rate reduction, and certain goods and services-like the national basic food basket, medicines for serious illnesses, and higher education-will be zero-rated or exempted, further tailoring the system to social and economic priorities.
Future adjustments: During the transition, reference rates will be set annually by the Federal Senate. From 2033 onward, rates will be recalibrated based on actual collections from 2026–2030 and capped at 26.5%, ensuring the system remains aligned with fiscal targets.
Implications for businesses
Predictability: The revenue-neutral approach provides businesses with greater predictability and reduces the risk of disruptive tax hikes or drops.
Compliance simplification: The dual VAT and noncumulative structure should simplify compliance, particularly for companies operating across multiple states and sectors.
Transition complexity: Businesses will need to operate under both the old and new regimes during the transition, requiring careful planning and system upgrades.
Unlike optional tax regimes, this reform will be mandatory for all companies doing business in Brazil, requiring a comprehensive reassessment of systems, master data, pricing strategies, and business models.
Awareness and readiness assessment checklist
Reform knowledge assessment
□ Establish a clear understanding of the dual VAT system (CBS and IBS) replacing PIS/COFINS, ICMS, and ISS
□ Identify sector-specific provisions affecting your business (e.g., 40% rate reductions for select sectors)
□ Understand the timeline: pilot implementation in 2026, CBS introduction in 2027, gradual phase-in of IBS, and full implementation by 2033
□ Review treatment of accumulated tax credits, especially. PIS/COFINS credits that remain valid after 2027
□ Map current tax positions against projected positions under the new system
□ Identify overlaps and conflicts: Pinpoint areas where old and new rules may overlap during the transition period
Current state analysis
□ Document current indirect tax processes, workflows, and compliance procedures
□ Inventory all existing tax exemptions, benefits, and special regimes currently utilized
□ Assess exposure to industry-specific taxes and check for special provisions under the new system
□ Evaluate current ERP and tax technology capabilities against new requirements
□ Analyze historical indirect tax data to establish baseline metrics
Stakeholder mapping
□ Identify all internal functions impacted by the reform (finance, IT, legal, supply chain, sales, procurement)
□ Document key external stakeholders (tax authorities, customers, suppliers, consultants)
□ Evaluate service provider capabilities to support during the transition
□ Identify critical decision-makers for tax reform adjustment approvals
Strategic planning and preparation
Project governance
□ Establish a dedicated tax reform transition team with clear roles and responsibilities
□ Develop a multi-year tax reform roadmap aligned with the government’s implementation timeline
□ Create a detailed project plan with key milestones through 2033
□ Secure executive sponsorship and necessary budget for implementation
□ Monitor regulatory updates: Assign a team member to keep an eye on official government publications and trustworthy tax news sources for ongoing changes and clarifications
□ Develop key performance indicators to track preparation progress
Risk assessment and mitigation
□ Perform impact analysis on cash flow, working capital, and effective tax rate
□ Identify potential compliance risks during the dual system transition period
□ Assess business model vulnerabilities under the new tax structure
□ Develop contingency plans for potential implementation delays or regulatory changes
□ Evaluate contractual risks with customers and suppliers during the transition period
Communication strategy
□ Create a communication plan for regular updates to leadership and affected departments
□ Develop training materials for finance and tax teams on the new tax structure
□ Prepare communication templates for external stakeholders (customers/suppliers)
□ Establish a feedback mechanism to capture questions and implementation challenges
Technical preparation and system readiness
Impact analysis
□ Analyze the impact of the 27.5% combined standard rate on your products/services
□ Identify which products/services qualify for reduced rates or zero-rating
□ Map the transition from cumulative PIS/COFINS regimes to non-cumulative CBS
□ Document how existing tax credits will be carried forward and utilized
□ Understand new input credit mechanisms and documentation requirements
Systems and technology updates
□ Assess if current ERP and tax engines can support IBS/CBS and destination-based tax calculations
□ Identify required modifications to tax determination logic and calculation engines
□ Identify necessary integrations between global and local systems to ensure seamless data flow
□ Plan master data updates to accommodate new tax codes and rules
□ Design new tax reports aligned with CBS and IBS requirements
□ Develop testing protocols for tax calculations under the new system
Data management
□ Create a master data governance plan for maintaining dual tax system information
□ Develop protocols for tax data migration to new structures
□ Establish data validation processes for the transition period
□ Identify historical data preservation requirements for audit defense
□ Design analytics capabilities to monitor tax performance under the new system
Operational adaptation strategies
Business process redesign
□ Map all processes requiring modification (procurement, sales, compliance, reporting)
□ Redesign invoice approval and tax validation procedures
□ Update accounts payable and receivable processes to handle new tax rules
□ Revise tax compliance calendars and filing procedures
□ Develop new audit support procedures and documentation requirements
□ Audit indirect tax clauses with suppliers, customers, and service contracts affected by the new tax rules, such as tax gross-up provisions, invoicing, and place of supply
□ Renegotiation triggers, such as contracts that may need amendments to avoid unexpected liabilities
Prioritize critical activities
□ Focus on activities that ensure legal compliance from the start of each phase
□ Safeguard processes essential to ongoing operations, such as invoicing and supply chain management
Build a timeline and resource plan
□ Create a detailed timeline with key milestones, deliverables, and responsible parties
□ Estimate costs for system upgrades, training, external consulting, and contingency
Scenario planning and impact analysis
□ Use scenario simulation tools to predict the impact of the new regime on your tax burden, cash flow, and pricing
□ Stress-test key assumptions with regular updates and refined scenarios as new guidance becomes available
Supply chain optimization
□ Evaluate how the reform affects existing supply chain structures
□ Assess opportunities to optimize warehouse locations and distribution networks
□ Review import/export procedures under the new system
□ Analyze cross-border transaction implications, especially digital services taxation
□ Reassess make vs. buy decisions based on new tax implications
Commercial and pricing strategies
□ Develop pricing update strategies for the transition period
□ Review customer and supplier contracts for tax change clauses
□ Prepare contract amendments addressing the tax reform changes
□ Analyze the competitive impact of the tax changes on pricing
□ Design customer communication plans explaining tax-related price adjustments
Positioning tax as a strategic partner
Value demonstration
□ Quantify potential tax savings from proactive reform planning
□ Identify business opportunities arising from the reformed tax structure
□ Develop metrics to track tax function’s contribution to transition management
□ Create executive dashboards demonstrating tax reform readiness progress
□ Document risk mitigation successes and value preservation initiatives
Cross-functional collaboration
□ Appoint a project manager to coordinate activities, track progress, and escalate issues
□ Establish regular coordination meetings with IT, finance, and operations
□ Assemble key stakeholders in tax, finance, IT, legal, and operations to drive awareness and adoption
□ Engage Brazilian tax specialists, and if necessary, experienced external advisors
□ Integrate tax planning into business strategic planning processes
□ Develop joint initiatives with procurement and sales to address contract revisions
□ Partner with treasury on cash flow management during the transition
□ Collaborate with legal on regulatory compliance strategies
Knowledge leadership
□ Develop tax reform intelligence gathering and monitoring capabilities
□ Create a knowledge management system to capture reform insights and learnings
□ Establish regular tax update briefings for leadership and affected departments
□ Build relationships with external experts and authorities for guidance
□ Participate in industry forums and working groups focusing on the reform
Continuous monitoring and adaptation
Regulatory tracking
□ Monitor development of supplementary laws establishing IBS and CBS specifics
□ Track regulations regarding the IBS Management Committee
□ Follow implementation guidelines and technical notices from tax authorities
□ Monitor Congressional consideration of presidential vetoes to the reform law
□ Stay updated on income tax reform discussions that may follow consumption tax reform
□ Maintain open lines of communication with Brazilian tax authorities as needed
KPI Tracking
□ Use dashboards to track key compliance and operational metrics.
□ Compliance Accuracy Rate: the percentage of tax filings and reports that are error-free
□ System Uptime: the reliability of your tax management systems, measured by the percentage of time they are operational
□ Training Completion Rate: the percentage of team members who have completed the required training modules
□ Audit Response Time: the average time it takes to respond to audit requests and inquiries
□ Tax Liability Variance: the difference between projected and actual tax liabilities, to gauge the accuracy of your financial forecasts
□ Customer and Supplier Communication Effectiveness: the percentage of partners who are informed and understand the changes affecting them
Implementation checkpoints
□ Establish quarterly readiness reviews against the transition timeline
□ Create a feedback mechanism to capture implementation challenges
□ Develop performance metrics to evaluate compliance accuracy during transition
□ Plan post-implementation reviews after each phase of the transition
□ Document lessons learned to improve subsequent implementation phases
Upgrade technology and data management
Choose the right tax management system
□ Select or upgrade to a tax management platform that automates IBS/CBS calculations, destination-based tax, and IS compliance
□ Opt for cloud-based tools to ensure real-time updates and scalability across jurisdictions
Integrate with core financial systems
□ Ensure your tax solution integrates smoothly with your ERP, procurement, and billing systems
□ Implement controls to maintain data accuracy, completeness, and consistency across systems
Leverage Advanced Analytics
□ Use AI-powered analytics to predict liabilities, optimize compliance, and identify anomalies
□ Develop dashboards for real-time monitoring of tax positions, compliance status, and key metrics
Strengthen compliance and controls
Update Internal Controls
□ Revise tax policies and procedures to align with new compliance requirements
□ Clearly define responsibilities for tax calculation, review, and filing to ensure proper segregation of duties
Prepare for increased audit risk
□ Keep thorough records of all tax positions, calculations, and transition decisions
□ Ensure your systems provide a robust audit trail for all tax-related transactions
Train and upskill your teams
Develop a comprehensive training program
□ Design training modules for tax, finance, IT, and operational staff, focusing on their specific responsibilities under the new regime
□ Host regular workshops and Q&A sessions with internal and external experts
Promote continuous learning
□ Encourage regular updates and best practice exchanges among teams to stay current with the latest developments
□ Invest in professional development resources and certifications to keep your team well-versed in Brazilian indirect tax regulations
Common pitfalls to avoid
□ Delaying system upgrades: Waiting too long to update your tax systems can lead to costly non-compliance
□ Underestimating training needs: Insufficient training can result in errors and missed opportunities
□ Ignoring contractual implications: Failing to review contracts can create unexpected liabilities
□ Overlooking local nuances: Not engaging local experts can lead to misinterpretation of the law
□ Inadequate budgeting: Underestimating transition costs can hinder your reform readiness
Best practices for a smooth transition
□ Start early: Begin preparations as soon as possible to avoid last-minute rushes
□ Be proactive: Anticipate changes and address them before they become urgent issues
□ Leverage technology: Automate processes to reduce errors and free up resources for strategic work
□ Collaborate: Foster collaboration across departments and with external partners
Conclusion
Brazil’s tax reform is a complex but transformative opportunity for international businesses. By following this checklist, indirect tax professionals can lead their organizations through the transition, mitigating risks, ensuring compliance, and unlocking new efficiencies.
Ready to take the next step? Contact Thomson Reuters® for tailored solutions, expert insights, and technology that simplifies compliance and empowers your tax team to thrive in Brazil’s new fiscal landscape.
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