Brazil Approves Second Law to Put New VAT System into Practice

Brazil’s PLP 108/2024 puts its new dual VAT system into operation, introducing a federal CBS (8.8%) and a state-municipal IBS (17.7%) to replace PIS, COFINS, ICMS and ISS between 2026 and 2033, alongside a new Selective Tax on products like alcohol and tobacco. The law creates a national IBS authority, sets detailed technical and sector rules, and provides transition, anti-evasion and social measures to ensure the full VAT reform is completed by 2033.

Brazil has adopted a second law, PLP 108/2024, to make its new VAT system work in practice, following Complementary Law 214/2025. The reform replaces Brazil’s fragmented sales taxes with two new VATs: a federal CBS (8.8%) and a state and municipal IBS (17.7%), which will gradually replace PIS, COFINS, ICMS and ISS between 2026 and 2033. A new Selective Tax will also replace the federal excise tax (IPI) on products such as tobacco, alcohol and sugary drinks.

A major change is the creation of a national IBS authority that will collect the tax, distribute revenues to states and municipalities, and issue binding rules, ending the long-standing system of competing state tax regimes. The law also clarifies key technical areas such as leasing, continuous supplies, temporary movement of goods, and VAT credit adjustments when invoices are changed, cancelled, or prepaid, reducing legal uncertainty.

Special VAT rules are introduced for sectors including financial services, energy, digital platforms, hospitality and entertainment, fuels, and property rentals, with stronger anti-evasion controls and clearer tax bases. Marketplaces may be allowed to collect VAT on behalf of sellers, and individuals renting property will become taxable only above defined thresholds.

The reform also includes social and simplification measures, such as VAT cashback for low-income households on essential services and the option for small businesses to stay in simplified regimes or move into the standard VAT system.

During the transition, existing ICMS credits will be carried forward into the IBS, and special rules will apply to real estate and financial services. PIS and COFINS will be fully replaced by CBS from 2027, confirming that Brazil is now firmly on track to complete its VAT reform by 2033.