Brazil’s tax reform will implement the new federal VAT (CBS) in 2027, replacing the complex PIS and COFINS taxes. Companies must overhaul their tax systems and align pricing to reflect a temporary 0.1 percentage point reduction in CBS. IPI rates will drop to zero for most goods, excluding products from the Manaus Free Trade Zone. New compliance rules with strict penalties will also be enforced, marking a significant transition for Brazilian businesses.
Brazil: Federal VAT (CBS) to Fully Replace PIS and COFINS from 2027
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Brazil
Author: Ivana Picajkić
Category:
General information
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568
Content accuracy validation date:
23.06.2026
Content accuracy validation time:
08:04h
Brazil’s tax reform will reach an important stage in 2027, when the new federal VAT (CBS – Contribution on Goods and Services) starts being charged in full.
From 2027, PIS and COFINS will be officially eliminated. These two federal taxes are known for being complex, with different calculation methods, regimes and exceptions. They will be replaced by CBS, which is intended to simplify federal taxation on consumption.
For companies, this means that old PIS and COFINS calculation processes will need to be deactivated. Businesses will have to fully migrate their tax systems, ERP settings and internal routines to CBS.
Although CBS will apply in full from 2027, there will be a small transitional adjustment. In 2027 and 2028, the CBS reference rate will be reduced by 0.1 percentage point, meaning that CBS will effectively be collected at 99.9% of its full rate during this period. Companies will need to reflect this in their pricing and cost calculations.
Another major change in 2027 is the reduction of IPI rates to zero for most goods. However, this reduction will not apply to products manufactured in the Manaus Free Trade Zone (ZFM). This exception is intended to preserve the region’s tax incentives and industrial competitiveness.
The Selective Tax, also known as the “sin tax,” will also start to apply in 2027. This tax will target goods and services considered harmful to health or the environment, such as tobacco, alcoholic and sugary drinks, and polluting vehicles.
The reform also strengthens tax compliance rules. Recent legislation increased penalties for mistakes related to tax documents, especially errors in issuing, correcting or cancelling invoices. Tax documents will become central because they define the taxable event, determine the tax calculation and support the use of tax credits.
Some of the main penalties include fines for cancelling tax documents after the taxable event, cancelling documents after the legal deadline, using credits incorrectly, failing to issue required tax documents, or providing incorrect information in import and export operations. In some repeat cases, penalties may be increased by 50%.
For Brazilian companies, 2027 will be a turning point. Businesses will need to review pricing, cash flow, ERP systems, invoicing processes, inventory management and internal tax routines.
The main challenges will be ensuring that systems work correctly, teams are trained, old PIS and COFINS routines are replaced, and the financial impact of CBS and the Selective Tax is properly managed.
Overall, 2027 marks the practical start of Brazil’s new federal consumption tax model. The reform aims to simplify taxation, but the transition will require careful preparation from companies.
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