[co-author: Marina Carvalho]
On 16 January 2025, the President ratified Supplementary Law No. 214/2025, marking a significant step in Brazilian tax reform. This new law outlines the framework for the IBS, the CBS, and IS, while also establishing the IBS Management Committee.
During the announcement, it was outlined that the initial tax rate would start at approximately 28%, slightly higher than previously anticipated. The specific applicable rates will be determined by subsequent legislation from the Union, States, and Municipalities.
The transition to the new system will occur gradually between 2026 and 2033. During this period, reference rates for CBS and IBS will be set by the Federal Senate. Starting in 2033, these rates will be calculated based on tax collections from 2026 to 2030 and capped at 26.5%. If this cap is exceeded, the Union, after consulting the IBS Management Committee, will propose a supplementary bill to Congress to adjust the rates.
The law also provides for a reduction of the rates on certain essential goods and services, ranging from zero to 60%, depending on the case. Key areas benefiting from these reductions include food, healthcare, education, real estate, freelance professions, and cultural productions. Importantly, tax benefits for the Manaus Free Trade Zone (ZFM) will continue as outlined in Section 92-A of the Transitional Constitutional Provisions Act (ADCT).
Additionally, basic food products, such as rice, beans, coffee, and milk, will benefit from reduced rates. There will also be a cashback program for low-income individuals and special conditions for app-based transport drivers.
Key takeaway
The recent enactment of Supplementary Law No. 214/2025 marks a pivotal moment in Brazilian tax reform, introducing significant changes with the implementation of the IBS, CBS, and IS. The initial tax rate is set at approximately 28%, with a phased transition from 2026 to 2033. Given the complexity and potential implications of this reform, it is essential that taxpayers carefully assess their current tax strategies and consider the impact of these changes on their business operations.
Reference
LEI COMPLEMENTAR Nº 214, DE 16 DE JANEIRO DE 2025
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