Brazil Tax Reform 2026 to 2033: What Foreign-Owned Companies Need to Know

Reviewed by Luiz Eduardo da Silva, director of LegalBR. Updated on 14 October 2026. About 11 minutes to read.

Brazil is rebuilding its consumption taxes from the ground up, and at the same time it started taxing dividends paid abroad. A company opened today will live through the whole transition, so the choices you make at incorporation carry further than they used to.

The transition timeline

The reform was approved as Constitutional Amendment 132/2023 and regulated by Complementary Law 214/2025. Instead of switching overnight, Brazil runs the old and the new systems side by side for several years:

1. 2026: test year

   CBS at 0.9% and IBS at 0.1% are shown on invoices alongside the current taxes. Companies that meet the ancillary obligations are exempt from paying them in this phase, which is designed to test systems and calibrate rates.

2. 2027: CBS in full

   CBS is charged at its full rate and PIS and COFINS are extinguished. IPI rates are reduced to zero for most products, and the Selective Tax (Imposto Seletivo) starts on goods considered harmful to health or the environment.

3. 2029 to 2032: gradual shift

   ICMS and ISS rates are reduced to 90%, 80%, 70% and 60% of their levels, while IBS increases correspondingly.

4. 2033: new system complete

   ICMS and ISS are extinguished. CBS and IBS operate in full.

How CBS and IBS work

CBS and IBS share the same rules on what is taxed, who pays and how credits work; the difference is who receives the revenue. CBS goes to the federal government, and IBS is shared by states and municipalities through a national management committee.

The combined standard rate is calibrated during the transition and is expected to be among the highest value-added tax rates in the world. In exchange, the tax is designed to be neutral along the chain: businesses recover the tax paid on what they buy and the burden lands on final consumption. The law also sets reduced rates for specific sectors, such as health, education and certain regulated professions, and a zero rate for the basic food basket.

What changes in practice

• Service companies. Many pay PIS and COFINS today on a cumulative basis, without credits. Under CBS and IBS they gain credits but face a higher nominal rate; the net effect depends on margins and on how much they buy from other businesses.
• Location. With IBS due at destination, state tax incentives lose weight in deciding where to set up. Logistics, talent and customers matter more.
• Invoices and systems. Electronic invoices already carry CBS and IBS fields. Billing and ERP systems need to calculate both systems during the transition.
• Cash flow. Split payment moves collection to the moment of payment, which changes working capital for companies that rely on paying tax only after receiving from customers.
• Double work until 2032. For several years companies calculate the old and the new taxes at the same time. Budget for more compliance effort, not less.

Exports, imports and services from abroad

For international groups, the cross-border rules are where the reform touches the business model directly:

• Exports of goods and services are relieved of CBS and IBS, and the exporter keeps the credits on its purchases.
• Imports of goods and services are taxed, so that Brazilian and foreign suppliers compete on equal terms. Services contracted from a foreign group company, such as management, software or licenses, should be reviewed with this in mind.
• Intercompany pricing agreed before the reform may need to be revisited, since the tax cost of cross-border services changes over the transition.

Income tax and dividends

The consumption tax reform does not replace corporate income tax. Companies with a partner domiciled abroad cannot opt for Simples Nacional, the simplified regime for small businesses (Complementary Law 123/2006, article 17), so they choose between presumed profit (Lucro Presumido) and actual profit (Lucro Real) for corporate income tax and social contribution (IRPJ and CSLL).

A separate change affects foreign shareholders directly. Law 15,270/2025 introduced a 10% withholding income tax on profits and dividends paid to shareholders resident abroad, starting in 2026. Profits for periods up to 2025 kept the previous exemption, provided their distribution was approved by 31 December 2025 and paid within the deadlines set by the law. Tax treaties and the specific rules of the law should be reviewed for each group.

Five decisions at incorporation

1. Activity codes (CNAE)

   They determine licenses, municipal registration and how the tax authorities classify your operation, including access to reduced rates.

2. Head office and establishments

   With destination taxation, choose locations for operations and talent rather than for local incentives that are being phased out.

3. Tax regime

   Lucro Presumido or Lucro Real, chosen with your accountant considering margins, credits and the transition years.

4. Contracts

   Long-term contracts signed now should state how prices adjust when the tax burden changes between 2026 and 2033.

5. Systems

   Make sure the invoicing tool supports CBS, IBS and split payment before the first sale.

Once the apostilled documents arrive in Brazil, our team typically has the company ready to operate within 15 to 30 days, unless a specific license is required. Check your route in the Brazil Entry Planner.

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