Tax Reform – Complementary Law establishing IBS, CBS, and IS

By ricardo valim and José Martho

On January 17, Complementary Law 214/2025 was published, approving the Consumption Tax Reform and establishing the Goods and Services Tax (IBS), the Goods and Services Contribution (CBS), and the Selective Tax (IS).

IBS AND CBS

Despite the presidential vetoes of the bill approved by Congress, the main rules governing IBS and CBS were maintained:

– Dual VAT – IBS and CBS are regulated by the same Complementary Law, without prejudice to specific regulations, having the same taxpayers, taxable events, calculation bases, hypotheses of non-incidence, and specific, differentiated, or benefited regimes.

– Broad incidence – Taxation on transactions involving goods, whether tangible or intangible, rights and services.

– Broad right to credit – taxpayers may book as credit for any purchases, except those for personal use and on which the supplier did not pay taxes.

– Calculation from outside – The new taxes will not be included in their calculation bases or in those of other taxes.

– Incidence at destination – The IBS will be levied at the sum of the rates of the State and Municipality of destination, as follows:

• Material goods: Place of delivery or provision.
• Immovable property (and related services and intangible property): where the property is located; and
• Services: where the service is provided or enjoyed (services provided to an individual in attendance), place of provision (service provided on the movable tangible property), place of commencement of the passenger transport service, place of destination for freight transport, place of the recipient’s main domicile (residual rule for services, intangible property, and rights).

– Rates – Reference rates are to be determined by the Federal Senate for IBS (state and municipal rates) and CBS (federal rate), but the definition of the percentage to be applied is still pending. A five-year review of the rates is planned in which case, if they exceed 26.5%, they should give rise to a supplementary bill proposing measures to reduce the percentage to a level equal to or lower than 26.5%.

– Centralization – the calculation and payment of IBS and CBS will be centralized in a single establishment, consolidating all debits and credits calculated by the other establishments of the same legal entity.

– Specific regimes – Specific activities whose IBS and CBS levy rules differ from the general rule (through a single levy, different rates and calculation bases, or a differentiated credit regime), such as:

• Financial services
• Real estate transactions
• Health plans
• Gambling contests
• Fuels and lubricants
• Hotels, amusement and theme parks, travel and tourism agencies, bars, restaurants, soccer joint-stock companies and regional aviation
• Cooperatives; and
• Intercity and interstate road, rail, and waterway passenger transportation services.

– Differentiated regimes – activities or products that are subject to the general rule of IBS and CBS, but at reduced rates (there is no provision for other tax benefits related to IBS and CBS), such as:

• 30% reduction in IBS and CBS rates – Professional services (such as lawyers, administrators, architects, accountants, doctors, engineers, etc.).
• 60% reduction in IBS and CBS rates – Education services, health services, medical and accessibility devices for people with disabilities, medicines, food, personal hygiene and cleaning products consumed by low-income families, agricultural and aquaculture products and inputs, national artistic, cultural, event, journalistic and audiovisual productions, institutional communication, sports activities and goods related to national sovereignty and security, information security and cyber security and operations related to urban rehabilitation projects in historic areas and critical urban recovery and conversion areas delimited by municipal or district law (according to Annexes II to XI).
• Reduction to zero of IBS and CBS rates – National Basic Food Basket, medical and accessibility devices for people with disabilities, medicines, basic menstrual health care products, horticultural products, fruit and eggs, passenger cars purchased by professional drivers for use in the rental category (cab) and by people with disabilities or autism spectrum disorder and services provided by non-profit Scientific, Technological and Innovation Institutions (ITC) (according to Annexes I and XII to XV);
• Exemption from IBS and CBS – provision of public road and subway passenger transport in urban, semi-urban, and metropolitan areas.

– Favored regimes – Activities currently enjoying differentiated tax treatment, as follows:

• Simples Nacional – Possibility for the company to remain in Simples Nacional, adhering to the IBS and CBS to enable credit to the client.
• ZFM – Maintenance of the favored regime of the Manaus Free Trade Zone and Free Trade Areas, using IPI, IBS, and CBS to maintain the region’s differentials.
• Biofuels – Maintenance of the favored regime for low carbon emission biofuels and hydrogen.
• Special customs regimes and Export Processing Zones – Suspension of taxes levied on imports.
• Capital goods – Suspension on imports and domestic acquisitions (REPORTO, REIDI, and acquisitions defined in a joint act by the Ministry of Finance and the Management Committee).

The new institutes created especially for the operationalization of IBS and CBS were also maintained:

– IBS Management Council – A new public entity under a special regime with technical, administrative, budgetary, and financial independence, responsible for issuing a single regulation and standardizing the interpretation and application of IBS legislation, collecting it, making offsets, and distributing the proceeds of its collection among states, the Federal District and municipalities, and deciding administrative disputes.

– Cashback – Return of the tax to families with a monthly income of up to ½ the minimum wage (CadÚnico), at the time of collection of the cooking gas supply operation (100% of CBS and 20% of IBS), electricity, water and sewage (50% of CBS and 20% of IBS) and in other cases (20% of CBS and IBS). Entities may, by specific law, set higher percentages (up to 100% of their share); and

– Split payment – IBS and CBS credits may be conditional on verification that the tax has been paid, provided that the purchaser can pay the taxes levied on their purchases or that payment takes place when the transaction is settled. Solutions will be built with means of payment.

Remaining ICMS credits – ICMS credit balances existing at the end of 2032, approved by the respective federal entities and reported to the Management Committee, may be used by taxpayers to offset against the IBS (i) for the remaining period, for credits relating to the entry of goods destined for permanent assets or (ii) in 240 equal and successive monthly installments (updated by the IPCA), in other cases.

Remaining PIS and COFINS credits—PIS and COFINS credits, including presumed credits, that have not been appropriated or used by the date of extinction of these contributions will remain valid and usable for offsetting against the amount due from CBS or other federal taxes or for reimbursement in cash.

ICMS Tax or Financial-Fiscal Benefits Compensation Fund – Aims to compensate, between January 1, 2029 and December 31, 2032, individuals or legal entities benefiting from tax or financial-fiscal exemptions, incentives, and benefits granted for a certain period and subject to conditions, due to the replacement of ICMS by IBS and related to the production chain (excluding benefits conditional on mere financial counterparts – such as contributions to state funds – and those aimed at commercial activities, agricultural products and increasing (aero)port activities). It applies to holders of onerous benefits duly granted until 12/31/2023, without prejudice to extensions or renewals, and who have complied in good time with the conditions required by the rule granting the benefit.

SELECTIVE TAX

Incidence: levied on the extraction, production, sale, and import of goods and services harmful to health or the environment of the products described in Annex XVII of Complementary Law 214/2025 (vehicles, boats and aircraft, cigarettes and smoking products, alcoholic beverages, sugary drinks, mineral goods, lotteries, betting, and fantasy sports).

Institution: will be legislated by ordinary law, including rates.

Extrafiscality and single-phase taxation: the text expressly includes an extrafiscal purpose and single-phase taxation.

Non-incidence: express exclusion of taxation on energy, telecommunications, and goods and services with a 60% reduction in the IBS and CBS rate.

Calculation base: IBS, CBS, and IS itself are not part of the IS calculation base.

IMPLEMENTATION SCHEDULE

The implementation schedule for the new taxes (and the extinction of current taxes) will run from 2026:

2026 – Partial collection of IBS (state rate of 0.1%) and CBS (0.9%) begins, the amounts of which can be offset against PIS and COFINS. During this period, taxpayers who comply with the ancillary obligations relating to these taxes may be exempt from paying them.

2027 – Full collection of CBS, IS, and CIDE-ZFM begins. PIS/COFINS (as long as CBS is instituted) and IPI (as long as CIDE-ZFM is instituted – otherwise the IPI rate will be reduced to zero, except for products with incentivized industrialization in the ZFM) remain extinct.

The IBS remains at 0.1% (state rate of 0.05% and municipal rate of 0.05%), with the CBS rate reduced by 0.1%.

2029 to 2032 – ICMS and ISS gradually reduced (10% in 2029, 20% in 2030, 30% in 2031 and 40% in 2032) and IBS gradually increased (10% in 2029, 20% in 2030, 30% in 2031 and 40% in 2032);

2033 – ICMS and ISS will be abolished, with the full collection of IBS and CBS.

This bulletin is for information purposes only and should not be relied upon to obtain legal advice on any of the topics covered here. For additional information, please contact the leaders of the Tax Team.

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