The Brazilian tax system underwent a major change with the approval of Complementary Law 214/2025, formerly known as PL 68/2024, on January 16th of this year.
Brazil has implemented a modern and internationally aligned tax reform through regulation.
We will examine the modifications, new taxes, and their effects on consumption and sustainability in this text.
What is stated in LC 214/2025?
The Complementary Law 214/2025 plays a key role in the Tax Reform framework set forth by the Constitutional Amendment 132/2023.
Its main innovations include introducing new taxes and consolidating existing ones to streamline the intricate Brazilian tax system.
The law establishes guidelines for:
- The Contribution on Goods and Services (CBS) is a federal tax.
- The Tax on Goods and Services (IBS) is divided among states, municipalities, and the Federal District.
- The Selective Tax (IS) serves an extra purpose of discouraging products that are harmful to health and the environment.
LC 214/2025 also sets out rules for the recovery of tax credits along the production process and introduces improvements in sustainability and tax fairness.
Discover additional information regarding Tax Reform.
The Tax Reform had been discussed for many years, but it was only with Constitutional Amendment 132 and LC 214/2025 that Brazil started to see real changes.
It seeks to address historical issues like system regression, which disproportionately impacts low-income consumers.
The model becomes simpler and more efficient with the consolidation of taxes like PIS, Cofins, IPI, ICMS, and ISS.
The fundamental principles of reform consist of:
- Storage simplification.
- Tax litigation reduction.
- Investment and export exemption.
To gain a deeper comprehension of tax consolidation and the introduction of new taxes, refer to our comprehensive handbook on tax restructuring.
What taxes have been implemented?
The LC 214/2025 outlines three primary taxes.
- CBS stands for Contribution on Goods and Services.
The CBS replaces PIS and Cofins in a federal context and has a broad impact on trade, services, and industries.
- Business and Services Tax (IBS):
The IBS encompasses both ICMS and ISS, overseen by state and local governments, with a wide reach across trade, services, and industries.
- Selective tax applies.
This is a regulatory tax on products that are detrimental to health or the environment, like cigarettes and fossil fuels.
The tax calculation process is reversed, with taxes being calculated based on the final value of the products, rather than the final value being presented with the taxes included.
These taxes are based on the Added Value Tax (VAT) model, commonly utilized in developed nations.
What modifications are taking place in consumption taxes?
The primary difference lies in streamlining and advancement.
Before, the tax system used to be marked by accumulation and intricacy. Now, the guidelines are:
Lack of total cumulativeness
Full non-cumulativity avoids the cascade effect by enabling tax credits to be utilized completely throughout the production process.
Previously, taxes were imposed at every stage of production, leading to the creation of the “shell effect.”
Taxes at different stages of the bread production chain, such as on flour, transport, and final sale, ultimately add up and affect the product.
Companies can now fully offset taxes paid in previous stages, ultimately lowering the consumer’s final cost and enhancing transparency in the tax system.
Cashback on Taxes
Tax cashback is a method that refunds a portion of the taxes paid by low-income households, promoting greater fairness in taxation.
It serves as a direct financial support for these families, thereby reducing the regressive nature of the system.
If a family spends $500 on food in a month, tax cashback allows them to get back a portion of the taxes paid on these items, easing the tax burden on their household budget.
Specific exceptions
Specific exemptions are designed to safeguard the most at-risk consumers, particularly in relation to essential goods.
Basic necessities like rice, beans, and milk will be excluded from tax obligations without the need for any additional steps.
The new taxes will not impact the prices of these items, keeping them affordable for the public.
These exemptions also help decrease the levels of food insecurity, which is an important problem in Brazil.
LC 214/2025 and the concept of sustainability
Sustainability is a key component of the recent law.
Selective Tax (IS) aims to reduce the use of damaging goods and promote the adoption of more sustainable behaviors.
Some of the key points include:
- Tax benefits for biofuels and renewable energy grid.
- Discounted price for recycled items purchased from cooperative organizations.
- Tax advantages for environmental restoration initiatives and promoting circular economy.
These efforts benefit both the environment and boost industries focused on sustainability.
When will this law take effect?
The LC 214/2025 includes a transition period that begins in 2027 and continues until 2032.
Companies and taxpayers should slowly adjust to the new tax system during this period, with the help of technical assistance and extra rules to guarantee successful execution.
Brazil is entering a new era.
The LC 214/2025 signifies the start of a new era in the Brazilian tax system, introducing increased simplicity, fairness, and effectiveness.
This legislation is a significant move towards the country’s economic growth and enhancing the business climate, with effects on the economy, consumption, and sustainability.
It is vital for lawyers and legal professionals to comprehend the adjustments and assist their clients during this period of change.
References:
The initial project regulating the new consumer tax system has been approved.
Frequently Asked Questions
What is different as a result of tax reform?
The reform simplifies the tax system by merging several complex taxes into two main ones: CBS and IBS. It also eliminates the cascade effect and introduces tax cashback to benefit low-income families.
Explore our comprehensive coverage on tax reform and its consequences.
How does tax reform affect Brazilians?
What does Dual VAT refer to?
What are the latest taxes on goods?
- CBS: Introduces a single rate to replace PIS and Cofins.
- IBS combines ICMS and ISS, which are shared between states and municipalities.
Regulatory tax on products that are detrimental to health and the environment.