Brazil’s Tax Reform - Key Changes for Business Models, Structures, and Compliance
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Brazil’s Tax Reform - Key Changes for Business Models, Structures, and Compliance

By: David Schoenberger, SeatonHill CFO Partner

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An Essential Reform


Brazil’s tax system has been one of the most complicated globally. Companies have had to deal with complex layers of federal, state, and municipal taxes as well as inconsistent regulations, onerous compliance requirements, recurrent litigation, and a cumulative “cascading” tax effect that distorted pricing and cost structures by imposing double taxation along the producer-to-consumer supply chain. Due to jurisdictional disparities, tax arbitrage tactics produced an unfair playing field and deterred natural economic efficiency.

A significant tax reform to streamline and simplify federal, state, and local tax laws was passed by the Brazilian government and Congress after decades of deliberation. Only indirect taxes (e.g., VAT) are covered by the new law, which was approved by the President in January 2025. Income tax changes are being discussed separately and are not covered by the current legislation. The long-standing inefficiencies and complexities that have historically reduced economic competitiveness and increased administrative burdens have been addressed by this new system.


Understanding the Impact


Most businesses will need to make major adjustments to their business models, structures, processes, systems, costs, pricing, and interactions with both customers and vendors due to the extensive and profound changes to the tax law. Local businesses will need to put procedures and systems in place to guarantee compliance with both tax regimes at the same time because the reform will phase out the current system concurrently with the introduction of the new system from 2026-2032.  As a result, it will probably take longer than a year to fully execute these changes.


The New Tax Framework


By imposing taxes where goods and services are consumed, the reform shifts Brazil toward a destination-based tax system. The foundation of this updated system is a single, wide tax base with centralized electronic reporting and full input credit recovery.


The new framework consists of a dual VAT system that consolidates five major taxes into:


  • CBS (federal VAT)

  • IBS (state and municipal VAT)

  • IS (federal excise tax on specific products deemed harmful, such as tobacco and alcohol)


Transition Roadmap for 2026–2033


Businesses must adhere to both tax systems during the transition, necessitating strategic departmental coordination and dual reporting procedures.

Implementation will proceed in phased stages:


  • 2026: Trial period with symbolic 0.9% CBS and 0.1% IBS rates.

  • 2026-2032: Coexistence of old and new tax systems

  • By 2033: Full phase-out of existing taxes (PIS, COFINS, IPI, ICMS, ISS)


Strategic Implications for Businesses


Corporate structure, working capital, and cash flow will all be impacted by the reform. Businesses will have to review their supply chain, tax credit monetization plans, M&A strategies, and legal entity frameworks. System updates are essential, especially for platforms used for tax compliance and ERP. The opportunity exists for firms to redesign business processes for greater operational efficiency rather than pure tax optimization.


Operational Impact


Collaboration across all functional areas will be critical for a successful implementation plan, including:


  • Tax and Finance: Dual compliance obligations, credit recovery, cash flow planning, changes in costs and margins, and review of financial plans

  • Legal: Contract renegotiations, litigation strategies, and corporate structure

  • HR: Review of benefits, cost of outsourced labor, and potential workforce restructuring

  • Sales & Pricing: Redefinition of  pricing, sales practices, and B2B contracts

  • Logistics & Supply Chain: Optimization under new destination-based taxation

  • Systems & IT: ERP and compliance tool enhancements to manage parallel obligations


Sector-Specific Challenges & Opportunities


Manufacturing, retail, e-commerce, and logistics are just a few of the industries that have to deal with sector-specific issues. Businesses in fiscal incentive zones (except Manaus) will have to reevaluate their business plans. The increased transparency and compliance requirements may lead to the formalization of the current informal sectors, creating new avenues for investment and market expansion.

 

Do Not Delay


Companies should begin working on their implementation plans as soon as possible. Because of the need to design, plan, and execute complex changes for transition and implementation, companies that delay could incur higher costs and greater risks as they face a decreased timeframe for the implementation deadlines. Additionally, it is critical that investors and multinational corporations operating in Brazil, along with their tax, accounting, and legal counsel, comprehend the ramifications of this comprehensive reform. Companies that implement the required changes early will have smoother, more cost-effective transitions and strategic advantages.


David Schoenberger is a global finance leader with expertise in transforming PE-backed, publicly traded, and privately owned companies in the US, Latin America, and Europe. He is skilled in scaling operations, optimizing cash flow, and building high-performance teams. He has driven growth through proactive collaboration with management teams, implementing KPIs, and streamlining processes. 


ABOUT SEATONHILL PARTNERS, LP


SeatonHill provides organizations’ financial leadership with a strategic and operational focus by placing elite CFO talent to challenge the business and contribute to operational decisions to achieve results.  With our curated talent, our financial leaders guide small and medium-sized businesses through complex financial problems to mitigate risk and achieve organizational goals.

 

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