The introduction of the Split Payment tax mechanism is part of the major tax reform in Brazil. The split payment mechanism is regulated by Complementary Law No. 214/2025 and subsequently issued legislation. This system is designed to assist tax authorities in reducing tax evasion and reducing the number of potential loopholes that will most probably arise after the transition to the dual VAT system.
CBS and IBS Split Payment Mechanism
The statewide introduction of the CBS and IBS split payment mechanism is based on the automated tax collection system, a withholding tax system, that will collect IBS and CBS at the point of payment and automatically transmit the withholding tax to the indicated revenue authorities.
The split payment tax collection mechanism represents a technological regulatory tool, which shifts the tax collection realm into real-time tax collection logic, as the tax is collected at the moment of the financial settlement of the commercial transaction.
The current financial settlement model is based on prolonged collection and tax remittance, based on the tax reporting period that a taxable person needs to follow.
The split payment system is triggered at the moment of financial settlement or the moment when the transfer is made. The payment service providers, digital intermediaries, or banks are mandated with the obligation to automatically withhold the % of the commercial transaction and remit the tax automatically(per the indicated timeframe) to the respective tax authorities.
Current Implementation Timeline
Testing Phase – October 15, 2026
The first phase, the testing phase, involves integration of the payment service providers(PSPs) with the Public Split Payment Platform in a controlled environment, without the real exchange of money.
Production Phase – Second part of 2027
Shift into production stage, where the system will go live on an optional and gradual basis, with primary focus on B2B transactions.
Mandatory Phase – Countrywide rollout of the split payment mechanism, with impact on the non-resident providers and digital intermediaries that bear the responsibility to withhold tax and have a joint tax liability with the non-resident digital provider.
Next Steps
Currently, there are “opposite” views on the implementation of the split payment mechanism, coming from the two main political parties that are competing for the Presidential seat. The “opposite” party to this part of the tax reform is stating out loud that the introduction of the split payment mechanism is an unnecessary burden for SMEs.
The gradual implementation of the major tax reform in Brazil is a process that has started and is continuously moving forward. The procedures for the implementation of the split payment tax mechanism(which also applies to IBS and CBS) are moving forward as well, so the shared “disputes” on the mandatory implementation of this system are creating uncertainty within the countrywide business community.