On January 16, 2025, Complementary Law 214/25 was enacted and published with partial vetoes, regulating Brazil’s tax reform, which originated from PLP 68/24.

As our firm has been advising clients, this law represents a significant overhaul of the national tax system, bringing relevant impacts to businesses and individuals, particularly in the area of consumption taxation. Among the main changes are modifications to the Goods and Services Tax (IBS) and the Social Contribution on Goods and Services (CBS), with a consolidated tax rate that could reach up to 28%.

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Reorganization of the Tax System

The reform simplifies consumption taxation by replacing the current five taxes with a dual Value-Added Tax (VAT) model, composed of:

✔️ CBS: Covers PIS, Cofins, and IPI, under federal jurisdiction;
✔️ IBS: Incorporates ICMS (state tax) and ISS (municipal tax).

These changes eliminate tax cascading and accumulation, creating a simpler system but with potential cost increases for businesses, particularly in sectors with low margins or extensive production chains.

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Gradual Implementation and Transition

The reform will be implemented gradually:

2026: Test phase with reduced rates for CBS and IBS;
2027 to 2033: Transition to new tax rates, while the old taxes are gradually phased out.

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Main Points of the New Regulation

✔️ Zero-rated basic food basket: Includes essential items such as rice, beans, milk, meat, and French bread;
✔️ 60% reduction in the standard rate: Applies to items like pasta, vegetable oils, and natural juices;
✔️ Selective Tax: Applies to products such as alcoholic beverages, cigarettes, vehicles, and boats, aiming to discourage the consumption of products harmful to health or the environment;
✔️ Cashback for low-income individuals: 100% refund of CBS and at least 20% refund of IBS on essential items, such as electricity and cooking gas.

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Impact on Businesses

The reform requires a strategic review of tax planning. Some key adaptations include:

✔️ Reviewing contracts and corporate reorganizations to mitigate the impact of higher tax costs;
✔️ Analyzing supply chains and logistics to identify opportunities for savings and efficiency gains;
✔️ Monitoring complementary regulations, which are essential for compliance with the new regulatory environment;
✔️ Reassessing tax planning strategies that previously considered state and municipal tax incentives.

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Presidential Vetoes

The Complementary Law was enacted with partial vetoes, including:

✔️ Selective Tax on mineral exports: Maintained, raising concerns among export sectors;
✔️ Exclusion of tax substitution regimes for IBS and CBS, reducing complexity in fulfilling tax obligations;
✔️ Entities remaining as IBS and CBS taxpayers:
Investment Funds;
Endowment funds established under Law No. 13.800/2019;
Real Estate Investment Funds (FII) and Investment Funds in Agribusiness Production Chains (Fiagro).

These vetoes will be analyzed by Congress, which may uphold or overturn them.

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Benefited Sectors and New Tax Rates

✔️ Healthcare and education: 60% tax reduction for medical services, accessibility devices, and basic education;
✔️ Real estate: Exemption for individuals with rental income below R$ 240,000 per year;
✔️ Liberal professionals: 18 categories, including lawyers and engineers, will benefit from a 30% tax reduction.

We are available to clarify any questions and discuss the specific impacts of tax reform on your business.