27.91% combined IBS & CBS tax rate published for 2026/32 implementation of VAT
Between 2026-33 Brazil is switching from PIS, Cofins, ICMS and ISS indirect taxes to the new federal CBS and state IBS VAT replacements. On 31 July 2026, the Goods and Services Tax Management Committee (CGIBS) published a likely eventual combined rate of 27.91%:
- CBS 9.21% (Contribuição sobre Bens e Serviços – Contribution on Goods and Services) federal tax on consumption – replacing PIS and Cofins
- IBS 18.7% (Imposto sobre Bens e Serviços – Tax on Goods and Services) state and municipal taxes – replacing ICMS and ISS.
The resolution confirms the 2027 transition rate remains at 0.1%, split equally between states and municipalities (0.05% each), as previously announced.
1 August 2026: penalties for new IBS & CBS regime
On 30 April 2026, the new regulations covering the implementing legislation of last year were published (Decree No. 12,955/2026 and Resolution No. 6/2026). From 1 August penalties may be imposed for failure to include taxable transactions in reporting. Brazil Split Payments will start in 2027, initially on a voluntary basis for B2B transactions.
A public consultation on the new regulations has been opened until 31 May. Next is consolidation rules from the CBS Federal Revenue Service and the IBS steering committee
This has started with a 2026 VAT pilot completing and a secondary VAT law passed on administration and sector guidance. Between 1 January and 30 April 2026 there was a waiver of most penalties for failure to e-invoice the new CBS and IBS taxes correctly.
CBS and IBS replace: PIS, Cofins, ICMS and ISS
The reform includes two new main indirect taxes to replace four existing state and federal taxes starting from 2026 and completing by 2033:
- CBS 8.8% (Contribuição sobre Bens e Serviços – Contribution on Goods and Services) federal tax on consumption – replacing PIS and Cofins
- IBS 17.7% (Imposto sobre Bens e Serviços – Tax on Goods and Services) state and municipal taxes – replacing ICMS and ISS.
- The Federal IPI excise tax will also be replaced by a new excise Selective Tax (Imposto Seletivo, IS), to be levied on goods and services that are considered harmful to public health and the environment.
The consolidated rate will be approximately 28%, with a blend of the CBS (8.8%) and IBS (17.7%) indirect taxes. But this may creep higher as details on some exemptions remain outstanding. There will be Brazilian VAT on financial services. The proposed measures include VAT split payments plan for all transactions.
Brazil VAT Transition Timeline (2026–2033)
Brazil will move gradually from its current system to the new dual VAT regime (CBS and IBS) over a seven-year transition period (2026–2032), reaching full implementation in 2033.
2026 – Pilot Phase
- CBS (federal VAT) introduced at 0.9%, and IBS (state/municipal VAT) at 0.1%, for testing only.
- Penalty regime starts from 1 August 2026.
- Existing taxes (IPI, PIS, COFINS, ICMS, ISS) remain in force.
- Businesses can offset CBS/IBS amounts against PIS, COFINS, or other federal liabilities.
- For compliant taxpayers (e.g. those issuing electronic invoices), the pilot CBS/IBS will not actually be collected.
2027–2028 – Federal Implementation
- CBS becomes fully operational.
- PIS and COFINS abolished; IPI reduced to zero, except in the Manaus Free Trade Zone (ZFM).
- IBS continues in a testing phase, levied at 0.05% each for states and municipalities.
- The Selective Tax (IS) on certain goods (e.g. tobacco, energy products) takes effect.
- To keep the overall tax burden stable, the CBS rate is temporarily reduced by 0.1%.
2029–2032 – Gradual State/Municipal Transition
- IBS rates increase gradually, while legacy ICMS and ISS rates decline year by year:
- 2029: ICMS/ISS cut to 90% of current rates
- 2030: 80%
- 2031: 70%
- 2032: 60%
- The Federal Senate will determine applicable IBS rates during this phase through formal resolutions.
2033 – Full Implementation
- New dual VAT system (CBS + IBS) fully replaces all previous taxes.
- ICMS and ISS abolished.
- Brazil’s unified, destination-based VAT regime becomes fully operational nationwide.
Objectives of Brazil’s new VAT regime
The new tax structure will enable:
- a change from the current origin basis of taxation to destination basis, and so following the global norm; and
- the right for businesses to deduct taxes on their inputs, and so ending most cascading of taxes and so undermining the internal Brazilian economy
Seven-year VAT transition
The transition to the dual VAT system is expected to occur over a seven-year-period, as follows:
- 2026: CBS rate of 0.9% and IBS rate of 0.1% as from 2026;
- 2027: Termination of PIS and COFINS and IPI; start of CBS collections;
- 2029: Gradual reduction of ICMS and ISS; and
- 2033 final rates of around 28%.
The following supplies will receive some discounts:
- Reduced rates of 40% of standard rate: public transport; artistic and journalistic; education; medical; health;
- Zero-rated: eggs; fruit; vegetables; certain medicines and medical supplies
- Exempt: public transport
- Special tax regimes: fuels; financial services; hotels and restaurants;
To offset these changes, the reform introduces various funds and compensation mechanisms for states.
The reforms include imposing Brazilian VAT on digital services and updates to the Brazilian e-invoicing regime.
Compensation funds to win political acceptance
To help where other attempts to reform the system has failed, it is proposed that there will be two compensation funds:
- 40 billion reais per annum for states’ development
- 160 billion reads States funds for tax benefits already granted
Brazil’s indirect tax maze until the start of VAT
The pre-reform major Brazilian consumption taxes are administered across the federal, state and municipal levels.
- Federal
- COFINS, Contribuição Social para o Financiamento da Seguridade Social – the federal tax contribution to the Social Security Financing paid on company revenues. The rate can be up to 7.6% on monthly revenue depending on the activities of the company.
- PIS, Programa de Integração Social, at a rate 1.65% with COFINS together comprise the social contributions levy applicable to transactions.
- IPI, Imposto sobre Produtos Industrializados – the federal tax on manufactured goods. The rate can be up to 300%. The ad valorem rate is set by HS product code and can be up to 300%. The average rate is 10%.
Originally, COFINS and PIS were business turnover taxes. They have been partially reformed for some businesses at 3.65% and 9.25% rates.
- 26 States
- ICMS, Imposto sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual e Intermunicipal e de Comunicações – the tax which applies to the movement of goods, transportation, communication services and other general supplies of goods. The current tax level is between 7% and 25%. A major challenge of ICMS is that it is not levied on the destination basis like most VAT regimes; instead on the origin basis.
- Municipalities
- ISS, Imposto sobre Serviços – the municipal tax on the provision of services. The rate ranges to up to 5%.
