If you are considering investing in Brazil or already have operations in the country, you must understand the new Tax Reform: the Brazilian tax system is undergoing the most significant modernization in its history. 

The purpose of this article is to prepare you for the transition starting in 2026.

Historically, Brazil has been known for an extremely fragmented and complex consumption tax system. However, the country is moving towards international standards by adopting the Value Added Tax (VAT) model. 

For foreign investors, this signals an attempt to increase legal certainty and transparency. Let us welcome you to this technical analysis, and examine how this mechanism will work in practice.

How the tax reform in 2026 will start

The year 2026 does not mark the end of the old system, but rather the beginning of a coexistence between two models. 

This is what we call the testing and adaptation phase. The Brazilian government has chosen not to terminate current taxes abruptly to avoid collection shocks and instability in corporate cash flows.

Starting January 1st, 2026, companies will begin to calculate two new taxes with reduced rates:

• CBS (Contribution on Goods and Services): a federal tax with a 0.9% rate.
• IBS (Tax on Goods and Services): a state and municipal tax with a 0.1% rate.

Combined, this 1.0% serves as a benchmark for the tax administration and taxpayers to calibrate their systems. A fundamental point to observe: the amount paid under these testing rates can be fully offset against the PIS and Cofins contributions owed by the company. 

Therefore, in 2026, the direct financial impact is neutralized, but the administrative compliance effort will be significantly higher, as your accounting department will need to handle both the old and new systems simultaneously.

The tax reform impact on business models: Simples Nacional, Lucro Real, and Lucro Presumido

Choosing a tax regime in Brazil has always been a high-complexity strategic decision. With the reform, the weights of this balance change.

1. Simples Nacional

The simplified regime for micro and small enterprises will remain. However, investors should be aware of a new rule: companies in the Simples regime can choose whether to pay IBS and CBS within the single tax document or through the credit and debit system (separately).

Why is this relevant? If your company is a supplier to a large multinational and you choose to pay within the Simples system, your client may receive a smaller tax credit. This could affect the competitiveness of your final price in the production chain.

2. Lucro Real (Actual Profit)

Companies operating under the Lucro Real regime tend to benefit the most from the VAT logic. The new system promises full non-cumulativity. This means that almost all inputs purchased by the company — from electricity to professional services — will generate credits to offset the tax due on sales. 

In the current system, credit rights are restricted and often lead to legal disputes. From 2026 onwards, clarity on what generates credit should reduce operational costs and the risk of tax assessments.

3. Lucro Presumido (Presumed Profit)

This regime, very common for service companies with high margins, faces an uncertain horizon. Since the standard Brazilian VAT rate (summing IBS and CBS) is estimated by the Ministry of Finance between 26.5% and 28.0%, companies in the Lucro Presumido regime may see their tax burden rise considerably if they do not have many credits to offset. Migrating to Lucro Real will cease to be an option and become a necessity for financial survival for many sectors.

Relevant changes of the tax reform for foreign investors

International investors often struggle with the “Tax War” between Brazilian states, where each region offers different incentives. The reform aims to extinguish this practice, leveling the playing field. Brazil is aligning its legislation with OECD guidelines, making it easier for foreign headquarters to consolidate balance sheets and understand the real tax burden.

Before detailing operational changes, it is necessary to understand that Brazil is moving from the Origin Principle to the Destination Principle. Currently, the tax largely belongs to the location where the product is manufactured. In the new model, the tax belongs to the location where the product or service is consumed. This simplifies interstate logistics and reduces the need for complex fiscal structures in every state of operation.

Here are the three operational changes that require your attention:

1. Split payment (Instant Tax Payment): Brazil will be a pioneer in using technology for tax collection. When an electronic payment is made (via card, transfer, or PIX), the banking system will automatically separate the tax amount and direct it to the government, delivering only the net amount to the company. This eliminates tax delinquency and simplifies life for investors seeking full compliance, but it requires much stricter cash flow control.
2. Increase in withholding on JCP (Interest on Equity): from January 2026 on, dividends will be taxed. 
3. Import taxation and isonomy: CBS and IBS will apply to the import of goods and services at the same rates as the domestic market. This ensures that investors producing in Brazil are not disadvantaged by imports that, in the old model, might have had undue tax advantages. The goal is competitive neutrality.

Tax reform implementation timeline

To help you plan your investment schedule, follow the stages of deactivating the old system and activating the new one:

Read: Accounting in Brazil: Impact of tax reform on the accounting of international companies

How should your company prepare for the tax reform?

Preparation for 2026 must begin immediately. As your advisor, Europartner recommends three fundamental steps to avoid operational risks:

• Tax classification review (NCM): Some products will have reduced rates. Each product that is entitled to a 60% reduction or a zero rate is listed along with its specific NCM code. If the company uses an NCM code that is not listed in these annexes, the billing system (and the future Split Payment) will apply the standard rate (estimated at 26.5% to 28%), causing the company to lose the tax benefit.
• Systems adaptation (ERP): the Split Payment mechanism and the coexistence of systems will require deep technological updates. Ensure your software providers are following the Federal Revenue’s Technical Notes.
• Profit margin simulation: with VAT rates around 27.0%, are your current prices still sustainable? It is necessary to recalculate long-term contracts that will span the year 2026.

Europartner: your reliable partner for the tax reform

Expanding or maintaining an operation in a country that is replacing its “tax engine” requires a local partner with a global vision. 

Europartner has established itself as a reference for foreign companies in Brazil, offering a secure bridge between international headquarters and complex local requirements.

With over 15 years of experience and a multidisciplinary team, Europartner offers more than just services; it provides legal and operational security through:

• Legal Representation and Company Administration: we act as a trusted arm for investors who need resident directors and compliance with regulatory bodies.
• Accounting and Bookkeeping: our systems are already being prepared for the 2026 transition, ensuring your company takes advantage of every tax credit available under the new VAT.
• HR Management and Payroll: HR will also be indirectly impacted by changes in payroll taxation accompanying the reform. We handle all the bureaucracy so you can focus on growth.
• Company Formation and Registration: we facilitate the entry of new capital, handling everything from registration with the Board of Trade to the necessary licenses to operate.
• Tax Optimization Consulting: we analyze whether your current regime (Lucro Real or Presumido) will remain the best option given the new reform timeline.

The 2026 Brazilian tax transition is an opportunity for organized companies to gain market share. With Europartner’s support, your business will be ready to thrive among the new rules.

Contact us now and schedule a consultation with our specialists.