Brazil’s new dual VAT explained: CBS, IBS and the end of PIS, Cofins, ICMS and ISS
Guilherme Chambarelli
Published on
3 min read
In this article
Brazil’s VAT reform replaces five consumption taxes with a dual VAT: the federal CBS (Contribution on Goods and Services) and the subnational IBS (Tax on Goods and Services), shared by states and municipalities. Both follow the same rules: a broad base, full input credits, tax charged separately from the price and revenue allocated to the place of destination. CBS replaces PIS and Cofins in 2027; IBS gradually replaces ICMS and ISS until 2033.
Key points
- Legal basis: Constitutional Amendment 132/2023, Complementary Law 214/2025 and Complementary Law 227/2026.
- CBS and IBS share the same taxable events, base and credit rules.
- Almost every business purchase generates a credit, unlike the old system.
- Tax goes to the state and municipality where the buyer is located.
- Reduced rates and specific regimes apply to certain sectors.
What does the dual VAT replace?
The current system has five taxes with different rules: PIS and Cofins (federal contributions on revenue), IPI (federal excise on manufactured goods), ICMS (state tax on goods and some services) and ISS (municipal tax on services). The reform consolidates them:
| Old tax | Level | Replaced by |
|---|---|---|
| PIS and Cofins | Federal | CBS (from 2027) |
| IPI | Federal | Reduced to zero in 2027, except for goods also made in the Manaus Free Trade Zone |
| ICMS | State | IBS (gradually, 2029 to 2033) |
| ISS | Municipal | IBS (gradually, 2029 to 2033) |
A separate federal Selective Tax applies to products considered harmful to health or the environment.
How do CBS and IBS work?
The design follows modern VAT systems used in most OECD countries.
- Broad base: goods, services, intangibles and rights, including imports.
- Full credit: tax paid on business purchases is credited against tax due on sales, except for items of personal use or consumption.
- Tax outside the price: the tax is shown separately and is not included in its own base, which ends the “tax on tax” effect of the old system.
- Destination principle: IBS revenue belongs to the state and municipality of the buyer, reducing the incentive for tax wars between states.
- Exports relieved: exports of goods and services are not taxed, and credits on inputs can be used or refunded.
Who administers each tax?
The Federal Revenue Service (Receita Federal) administers CBS. IBS is administered by the IBS Management Committee (Comitê Gestor), formed by states, the Federal District and municipalities, which centralizes collection and distributes revenue. Complementary Law 227/2026 regulated the Committee and the administrative procedure for IBS disputes.
What rates will apply?
The Federal Senate sets reference rates designed to keep overall revenue neutral. Official estimates published so far point to a combined CBS and IBS rate in the range of 26% to 28%. These are estimates, not rates fixed by law. The law provides:
- a 60% reduction for sectors such as healthcare, education and certain foods;
- a 30% reduction for certain regulated professions;
- zero rate for items of the national basic food basket;
- specific regimes for fuels, financial services, real estate, insurance and other sectors;
- a cashback mechanism for low-income families.
How credits and payment are linked
The new system links credits to actual payment. In general, the buyer can only use the credit once the tax on the purchase has been paid, and the split payment mechanism will allow the tax to be separated automatically when the customer pays electronically. According to the Federal Revenue Service, split payment will be phased in, with mandatory use expected only from 2028.
What should companies do now?
- Map which purchases will generate credits and which will not.
- Model prices and margins under CBS and IBS, sector by sector.
- Review long-term contracts for tax change clauses.
- Prepare invoicing and ERP systems for the new fields.
- Plan the use of PIS, Cofins and ICMS credit balances during the transition.
Frequently asked questions
Is the dual VAT a single tax?
No. CBS and IBS are two taxes, but they share the same rules, invoice and taxable events. Rates and revenue are separate.
Do Simples Nacional companies pay CBS and IBS?
They remain in the simplified regime but may opt to pay CBS and IBS under the regular regime, which lets business customers take full credits.
Are imported services taxed?
Yes. Imports of services and intangibles are subject to CBS and IBS, with credit for buyers under the regular regime.
Does the reform change income tax?
No. Corporate income taxes (IRPJ and CSLL) are not part of the consumption tax reform.
How Chambarelli Advogados can help
Our Corporate Taxation team and our Foreign Desk model the impact of CBS and IBS on Brazilian operations and help finance teams adapt prices, contracts and systems. Book a meeting with one of our partners.
Informational content, updated October 2026. It does not replace advice on your specific case.
