Brazil's New Tax System: What Changes for Businesses in 2027?
Brazil is making one of the biggest changes to its tax system in decades. From 2027, a new consumption-tax system will begin to replace several existing taxes, while a new mechanism called split payment will gradually change the way some taxes are collected.
For business owners, this may sound complicated. The easiest way to understand it is to look at the bigger picture first.
Brazil's Old Taxes vs. the New System
The tax reform introduces two main taxes: CBS at the federal level and IBS at the state and municipal levels.
Current tax | New system | What happens? |
PIS | CBS | Replaced by CBS from 2027 |
COFINS | CBS | Replaced by CBS from 2027 |
ICMS | IBS | Gradually replaced between 2029 and 2032 |
ISS | IBS | Gradually replaced between 2029 and 2032 |
IPI | — | Rate reduced to zero for almost all products, with specific exceptions |
— | Selective Tax (IS) | New tax on certain goods and services |
The key point is that CBS and IBS are not simply two additional taxes being added to the existing system. They are part of a broader transition from Brazil's current consumption-tax system to a new VAT-style system.
What are CBS and IBS?
CBS — Contribution on Goods and Services
CBS is a federal tax that will replace PIS and COFINS. Its implementation begins in 2027.
IBS — Tax on Goods and Services
IBS will eventually replace the state tax ICMS and the municipal tax ISS. Unlike CBS, however, its transition will take several years.
ICMS and ISS will be gradually reduced while IBS is introduced, with the transition taking place from 2029 to 2032.
And what happens to IPI?
IPI is slightly different.
It is not being directly replaced by CBS or IBS. From 2027, its rate will generally be reduced to zero, although it will continue to apply in specific circumstances, particularly in connection with products manufactured outside the Manaus Free Trade Zone where the tax is needed to preserve the region's competitive position.
The reform also introduces a new Selective Tax (IS). This tax is intended to apply to certain goods and services considered harmful to health or the environment.
What Is Split Payment?
One of the most interesting parts of the reform is the introduction of split payment.
Under the current system, a customer generally pays the supplier the full amount of a transaction. The company then calculates and pays its taxes to the government according to the applicable rules.
With split payment, the tax component of an eligible transaction can be separated automatically when the payment is settled.
For example, imagine a company sells goods for R$10,000.
Instead of the entire payment going directly to the supplier, the payment system could separate the applicable CBS and IBS amounts and send the tax portion to the government, while the remaining amount goes to the supplier.
In simple terms:
Customer payment → Tax portion → Government
Customer payment → Remaining amount → Supplier
The objective is to make tax collection more automatic and reduce the possibility of taxes being collected by a company but not subsequently paid to the government.
Does this mean every deposit into a company bank account will be taxed?
No.
This is an important distinction.
Split payment is not simply a new tax on money entering a company's bank account.
The system is connected to the underlying taxable transaction. In other words, the fact that a company receives money does not, by itself, mean that CBS or IBS will automatically be deducted.
This is particularly important when looking at transactions such as loans, capital contributions, transfers between accounts or other movements that are not sales of goods or services.
Who Will Be Affected in 2027?
The implementation will be gradual.
The split-payment system is expected to begin on a voluntary basis in 2027, initially focusing on transactions between companies, or B2B transactions.
This means that businesses will need to start preparing their financial, accounting and payment systems for the new tax structure.
Companies will also need to pay attention to their:
Invoicing systems
Accounting software
Payment systems
Pricing
Cash flow
Tax calculations
Relationships with customers and suppliers
The transition will not happen overnight. For several years, businesses will have to deal with elements of both the old and new systems.
What About the Simples Nacional System?
Small businesses using Simples Nacional will have different rules.
Companies that remain entirely within the Simples Nacional system are outside the initial split-payment arrangement. However, businesses using certain hybrid arrangements may be treated differently.
Therefore, small-business owners should not assume that the new system will affect every company in exactly the same way.
What About Money Transferred From a Company to Its Owner?
This is another area that can easily cause confusion.
A company receiving a payment from a customer is one issue. A company later transferring money to its owner is another.
The tax reform and other recent tax changes also affect the taxation of profits and dividends in certain circumstances. These rules should not be confused with split payment.
Split payment concerns the collection of consumption taxes such as CBS and IBS from taxable transactions.
The taxation of profits or dividends involves a different set of rules.
What Does This Mean for Brazilian Businesses?
The Brazilian tax reform is much broader than simply introducing two new taxes.
The country is moving from a complex system involving several different consumption taxes toward a dual VAT system, centred on CBS and IBS.
At the same time, the government is introducing mechanisms such as split payment to make tax collection more closely connected to the payment of each transaction.
For businesses, the most important message is this:
Money entering a company bank account is not automatically a taxable event simply because it was deposited.
Instead, businesses need to understand what the payment represents, whether it relates to a taxable transaction, and which tax rules apply to that transaction.
The transition will take several years, so companies should prepare their accounting, invoicing and payment systems well in advance.
For business owners, accountants and anyone studying Brazil's tax system, 2027 will therefore be an important year — but it is only the beginning of a much longer transition.
Take care!
Prof. Carl Boniface Escola de Ingles para Professionais
Discussion Questions
How do you think these changes will affect the business you work for?
Do you think this will be an effective system, or could it cause some companies to go out of business? What is your view?
Do you believe the Brazilian government is genuinely trying to support businesses? If so, to what extent?
Do you think current government policies are beneficial to the Brazilian population? Could they also help businesses expand and grow?
What support does the Brazilian government provide to help businesses succeed?
Do you think clever Brazilians who feel they are being taken advantage of will find ways to get around the new system? "O jeitinho Brasileiro" (the Brazilian way of bending the rules)
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