Brazil has approved Complementary Law derived from PLP 108/2024 (awaiting presidential sanction), establishing governance structures and operational amendments for the country's new dual value added tax system comprising federal Contribution on Goods and Services (CBS) and state-municipal Goods and Services Tax (IBS), with implementation beginning in 2026.
Background
The reform builds on Complementary Law No. 214/2025, which consolidated multiple federal, state, and municipal consumption taxes into the dual VAT system. The transition runs from 2026 to 2033, aiming to simplify compliance, reduce economic distortions, and enhance legal certainty by replacing the fragmented indirect tax structure.
Governance Framework
The law formally establishes the Committee for the Management of the Tax on Goods and Services (CGIBS) with legal authority, governance structure, and funding mechanisms. CGIBS assumes centralized administration, collection coordination, and revenue distribution for IBS among states and municipalities, with binding regulatory and interpretative powers within its statutory mandate.
Technical Corrections and Compliance
The legislation addresses editorial errors and cross-referencing issues across multiple provisions while clarifying ambiguous concepts including leasing arrangements and temporary transfers of goods. New rules determine taxable events for recurring, continuous, or fractional transactions, with provisions for credit recognition, reversals, and adjustments in cases involving prepayments, cancellations, or contract modifications.
The law creates the National Tax Compliance Program (PNCT) integrating IBS and CBS compliance frameworks, establishes unified Electronic Tax Domicile (DTE) for IBS with potential CBS integration, and harmonizes infractions, penalties, and administrative procedures across both taxes.
Sector-Specific Provisions
Energy sector rules include structured deferral mechanisms for free-market consumers and energy imports. Digital platforms receive clarification on compliance responsibilities with optional tax substitution models. Real estate provisions establish objective thresholds defining when individuals in leasing activities qualify as regular taxpayers. Financial services adjustments cover tax bases, deductions, and zero-rating provisions for certain imported services under specific conditions.
Fuel and lubricants sectors gain anti-fraud mechanisms for derivatives with transitional flexibility for natural gas. Hospitality and entertainment sectors receive aligned treatment with bars and restaurants for hotels, amusement parks, and theme parks.
Transitional Measures
The law implements gradual rules for selective taxes on sugary beverages, aligning them with alcohol and tobacco taxation. Enhanced real estate and financial services transition provisions improve legal certainty during the coexistence period of old and new systems. ICMS credit compensation using IBS collection is established, while São Paulo authorities indicate IBS and CBS exclusion from ICMS calculation during the 2026 testing period.
Context
While the legislative framework is largely complete through both complementary laws, detailed operational aspects await forthcoming CGIBS normative acts for IBS and federal executive regulations for CBS. The reform represents Brazil's most significant indirect tax restructuring, moving from a complex multi-layered system to a dual VAT structure aligned with international best practices.