VAT Compliance in Brazil: Navigating CBS and IBS Tax Reform

Brazil tax reform is here, and it is nothing like you have seen before. Starting in 2026, Brazil will begin switching from old indirect taxes like PIS, Cofins, ICMS, and ISS to the new CBS and IBS systems. For many businesses, the biggest question is this: How do you get ready for a rulebook that keeps changing until 2033? Confusion is high. If you worry about new rates, real-time compliance, or changing your tax software, you are not alone.

This is most important for anyone doing business in or with Brazil. CBS and IBS bring in a dual VAT structure to replace the messy stack of taxes every company faces today. The changes are big. Tax filing becomes automated. Credits work differently. Reporting rules get stricter and faster every year. Experts warn that businesses must update how they work to avoid missed filings or penalties. In fact, the new system demands real-time compliance, something most local companies never had to manage before.

In this article, you’ll learn about the timeline for CBS and IBS rollout, what the VAT replacement means for indirect taxes, and how to prepare your systems and teams for the new rules. You will also see how these tax changes move Brazil closer to global VAT standards, and what steps to take now to stay compliant and ahead of the curve.

Understanding Brazil’s Shift to a Dual VAT Model

Brazil’s tax reform replaces four old indirect taxes with a simplified structure: CBS (federal) and IBS (state/municipal). This new dual VAT system aims to fix the complicated web of taxes that businesses struggle with daily. For businesses, the biggest change is that tax is now based on where goods or services are used, not just where they come from. This matches what many other countries do and makes it much easier to handle cross-state sales. The CBS and IBS will still be managed by different tax authorities, but they’ll share common rules and standards, making compliance easier across Brazil’s 27 states and thousands of municipalities.

Phased Rollout: Your Timeline from 2026 to 2033

Instead of changing everything overnight, Brazil will phase out old indirect taxes and phase in the CBS and IBS gradually. 2026 is the first major milestone, with pilot rates starting at just 0.9% for CBS and 0.1% for IBS, but these will ramp up each year until the full 28% target is reached in 2033. This means you have time to adjust, but you cannot wait until the last minute.

Tip: Start mapping out your timelines now, especially if your business currently pays multiple types of indirect taxes. If you are an early participant in the pilot, your obligations could start sooner.

What Changes for VAT Compliance: Rates, Exemptions, and Selective Taxes

With CBS and IBS, most businesses will see one main combined rate for indirect taxes, targeting around 28%. While this seems high, remember it replaces stacked rates from several taxes, which often led to paying tax-on-tax. There are also new rules for special cases:

• There’s a new Selective Tax (IS) on goods and services considered harmful to health or the environment, so make sure to check if you sell any of these products.
• Sectors like public transport, education, and health get reduced rates or full exemptions.
• Basic food items, certain medicines, and medical supplies are zero-rated.

We recently spoke to clients who worried about sharply higher VAT for services, but public transport and essential goods will carry far less tax than other items. Keep this in mind when planning your price lists for the years ahead.

Moving to Real-Time VAT Compliance and Electronic Processes

This reform doesn’t just swap old rates for new ones — it changes how you file and report taxes. You’ll need to issue invoices electronically, with tax calculations and payments happening in real time. This means your ERP system will likely need an upgrade to support e-invoicing, tax validations, and instant payment splitting for every transaction. No more quarterly catch-up or manual calculations.

If you’re used to handling indirect taxes once a month, this change will have a big impact. Prepare by working with your current providers and running compliance drills now.

From Old Indirect Taxes to VAT: How Phasing Out Works

The process of winding down old taxes is clear but staggered, meaning you might report both old and new taxes for a few years. PIS, Cofins, and IPI will stop in 2027, while ICMS and ISS drop off gradually through to 2033. Plan to update your tax calendars and accounting books annually during this stretch. In our experience, companies that rely on one-size-fits-all tax software struggle most with these overlapping obligations. Now is the time to review how your systems handle tax mapping. For a broader perspective on global VAT changes and how other major economies are approaching modernization of their VAT systems, see our overview on China’s new VAT law and modernization of the VAT system.

Industry Details: Reduced Rates, Exemptions, and Special Regimes

Not all sectors are treated the same under Brazil’s new CBS and IBS taxes. For example:

• Education, public transport, arts, journalism, and healthcare services get a 40% reduced rate.
• Basic foods and medicines get a zero or exempt status.
• Fuels, financial services, and hotels/restaurants follow special rules.
• Digital services are now explicitly covered, ending years of uncertainty.

Understanding which category your service or product fits into will be vital in the new Brazil tax reform era. Don’t assume last year’s strategy works for next year’s invoice.

Cross-Border and Multinational Impact: Destination Rules and Cashback

With CBS and IBS, the tax follows the destination of goods or services. That means more predictable rules for exporters, importers, and anyone selling to or from Brazil. Multinationals used to international VAT compliance will now find Brazil’s new system more familiar and easier to match to global processes. There are also social equity rules, such as a cashback system and food exemptions, to limit tax pressure on lower-income households. This is a big step — Brazil finally moves toward the standards used by the European Union and similar markets. If you are interested in how other regions are simplifying VAT regimes and introducing new SME schemes, check out our coverage of the EU reform of SME schemes and simplified VAT compliance.

Upgrading Staff and Technology: Real Training, Not Just Updates

This isn’t a flip-the-switch reform. You’ll need to train your finance and sales teams early, so they can spot mistakes and stay compliant. Technology alone is not enough — people need to understand day-to-day changes. We recommend running mock tax filings and regular staff briefings, especially as new rules roll out over the transition period.

Action Steps: What You Can Do Today

Here’s how to stay ready for the changing landscape:

• Review every tax process, from billing to payment and refunds.
• Audit your ERP and invoicing systems for readiness; invest in upgrades before deadlines.
• If you’re eligible for a pilot, join early. The sooner you adapt, the fewer surprises in 2027 and beyond.

Collaborate with local advisors and global partners to avoid costly mistakes. Businesses who review their compliance in advance tend to avoid the last-minute rush and penalties.

Keep Monitoring and Adjust as Brazil’s VAT Replacement Evolves

The Brazil tax reform will keep evolving until 2033. New exemptions, rates, or reporting details could come out each year. Staying informed is your most important move. At 1stopVAT, we keep our own clients updated via alerts and webinars as new rules are announced. Set up alerts, schedule yearly reviews, and keep the lines open with advisors. The end result? A tax system that puts Brazil in line with global trade and makes compliance less of a guessing game.

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