Brazil’s 2026 tax reform: preparing for transition

Starting in January 2026, Brazil will enter the transition phase of its most ambitious tax reform in decades — a structural overhaul that will reshape the taxation of goods and services. While the reform aims to simplify one of the world’s most complex tax systems, its scale and impact cannot be underestimated: it will redefine compliance, financial planning, and competitiveness for both domestic and multinational businesses.

What changes with the reform

The reform, established by Complementary Law No. 214/2025, introduces a dual VAT model and a new selective tax to replace five existing levies:

• Federal taxes: PIS, COFINS, IPI (gradually phased out, with partial rates remaining until 2027 – except for IPI if the product is manufactured in the Manaus Free Trade Zone (ZFM) and its TIPI/2022 rate is equal to or greater than 6.5%), and IOF (insurance-related).
• State and municipal taxes: ICMS and ISS (gradually phased out, with partial rates remaining until 2033).

Post-reform structure:

• CBS (Contribution on Goods and Services): a federal VAT-type tax.
• IBS (Tax on Goods and Services): a subnational VAT administered jointly by states, municipalities, and the Federal District.
• Selective Tax (IS): targeting specific products such as tobacco, alcohol, sugary drinks, and environmentally harmful goods.

Key principles

• The tax will be due at the place of consumption.
• Taxes will be added to the total invoice and will not be part of the sales price.
• Simplified and unified legislation for all consumption taxes.
• A more transparent tax system.
• Full non-cumulative application.
• Repeal of all regional tax incentives by 2032.

Expected impacts

The reform’s transition timeline spans 2026 to 2032, with full implementation in 2033. Throughout this period, companies will face challenges such as:

• Strategic repositioning of supply chains Location decisions will no longer hinge on state tax incentives but on logistics efficiency and consumer proximity.
• Repricing and contract adjustments Pricing models and commercial agreements must be recalibrated to reflect the new tax burden without eroding margins.
• Management of accumulated tax credits Unused balances of ICMS, PIS and COFINS risk expiration or monetisation in long-term instalments (up to 240 months), requiring immediate validation and strategic use.
• ERP and compliance overhaul All accounting and tax systems will need significant reconfiguration to process CBS, IBS, and IS accurately and comply with new filing requirements.
• Increased legal complexity New approval and validation procedures, particularly at the state level, may intensify administrative disputes and litigation.

What companies should do now

With just months before the transition begins, businesses must act decisively:

• Conduct a tax reform diagnostic – map operations, cost structures, and supply chains to identify where the reform will hit hardest.
• Simulate scenarios – model the financial and tax impacts across different transition paths to support informed strategic planning.
• Manage tax credits proactively – prioritise validation and monetisation strategies for accumulated credits before the new system takes full effect.
• Review contracts and pricing – adapt clauses and pricing mechanisms to align with the new tax framework.
• Upgrade systems and governance – ensure ERP readiness and reinforce compliance processes to mitigate risks.
• Engage expert support – specialised guidance is essential to navigate the uncertainties of regulation and safeguard competitiveness.

Brazil’s 2026 tax reform is not a distant prospect — the transition begins in January next year. For multinational groups with Brazilian subsidiaries, the implications extend beyond compliance: they affect price and cost build-up, gross margin, profitability, cash flow, investment strategies, and market positioning.

Those who prepare now will turn disruption into opportunity. Those who delay risk financial losses, compliance challenges, and missed strategic advantages.

At Forvis Mazars, we are ready to partner with you — from diagnosis to implementation — ensuring a smooth transition and long-term success in Brazil’s new tax landscape.