BRAZILIAN TAX REFORM: Complementary Law No. 214/2025 Sanctioned

On January 16, 2025, Brazil’s president sanctioned Complementary Law No. 214/2025 (CL 214), stemming from the approval of Complementary Bill of Law No. 68/2024 (PLP 68), which establishes the Tax and Contribution on Goods and Services (“IBS” and “CBS”), as well as the Selective Tax (IS), popularly referred to as the Brazilian Tax Reform.

The CL 214 is divided into three books covering the following subjects: (i) general rules for the IBS and CBS (Book I); (ii) general rules for the IS (Book II); (iii) provisions on IPI offset (Book III); (iv) a five-year evaluation of aspects of the project that do not correspond to general rules for the levy of taxes (Book III); and (v) the Manaus Free Trade Zone and Free Trade Areas (Book III).

Below, we provide a summary of what we consider to be the most important points of the CL 214 (Book I and Book II).

IBS and CBS General Rules

A.1) Concepts:

Book I, when providing for the general rules of IBS and CBS, defines (articles 1 to 3):

• “Good” as a material or immaterial good, including a right;
• “Supply” as the delivery or availability of tangible goods, or the institution, transfer, assignment, licensing, or availability of intangible goods, including rights; and the provision of services.
• “Supplier” as the person, residing or domiciled in the country or abroad, who performs the supply service as a legal entity, or entity without legal personality (including a consortium, condominium and investment fund) and the individual.
• “Purchaser” as the person obliged to provide the payment or counter payment for the supply of goods or services, and, in the case of payment on account and order or on behalf of third parties, the purchaser becomes the person who, on whose behalf or in whose name, the obligation to pay for the supply of the good or service arises.
• “Recipient” means the person to whom the goods or services are provided (whether or not the purchaser).

a.2) Tax triggering event:

The CL 214, introducing the elements of the tax triggering events of CBS and IBS (articles 4 to 7), includes a list of examples  of legal acts and transactions that focus on the supply of goods and services. In addition, it defines as a “service transaction” any transaction that is not classified as a transaction with goods. Thus, any supply that does not have as its object a tangible or intangible good, including rights, will be considered a service transaction.

Within this list of examples of legal acts and transactions are:

• Disposals, including purchase, sale, exchange, permutation, accord, and satisfaction
• Leases
• Licensing, concessions, and assignments
• Loans;
• Donations, with compensation for the benefit of the donor;
• Onerous institution of rights in rem
• Leases, including commercial leases
• Provision of services

In addition, the following tax events are listed:

• Provision of goods and services at no charge, or at a price lower than the market value
• Provision of gifts and bonuses
• Transfer by the taxpayer, to a partner or shareholder who is not a taxpayer under the regular tax regime, through capital repayment, in-kind dividends, or other means, of goods whose acquisition allowed the taxpayer to claim tax credits, including in production
• Other non-chargeable provisions, or those provided at a price lower than the market value of goods and services by a taxpayer to a related party.

In addition, there is a provision for the non-incidence of taxes on various cases, including:

• Provision of services by individuals, due to an employment relationship with the taxpayer or their role as administrators or members of boards of directors, fiscal boards, and advisory committees of the taxpayer's board of directors
• Transfer of assets between establishments belonging to the same taxpayer
• Write-offs, liquidations, and transfers—including sale—of equity interests
• Transfer of assets as a result of mergers, spin-offs, payment, capital contribution and returns
• Financial income
• Stock market transactions
• Receipt of dividends and interest on equity, interest, or capital remuneration paid by cooperatives, and the results of equity participations
• Donations without compensation for the benefit of the donor
• Transfer of public resources and other public assets to civil society organizations constituted as non-profit legal entities within the country, through fostering agreements, collaboration agreements, cooperation agreements, partnership terms, decentralized execution terms, management contracts, transfer contracts, subventions, conventions, and other instruments signed by the direct public administration, autonomous agencies, and public foundations
• Allocation of resources by cooperative societies to the funds provided in Article 28 of Law No. 5,764, of December 16, 1971, and the reversal of funds from these reserves
• Cooperative transfers to its members, resulting from operations covered by the specific regime of IBS and CBS for cooperatives, and the cash distribution of surplus by cooperative societies to members, calculated in the income statement for the fiscal year.

IBS and CBS are not levied on exports of goods and services abroad (articles 8 and 9), and the taxable event is considered to have occurred at the moment of supply in transactions involving goods or services, even if performed continuously or in installments (Article 10). The supply is considered to have occurred at the moment:

• From the start of transportation, in the provision of transportation services initiated within the country;
• From the end of transportation, in the provision of cargo transportation services when initiated abroad;
• From the end of supply, in the case of other services;
• When goods are found without proper tax documentation; and
• From the acquisition of the goods in cases of public tenders for seized/abandoned goods or judicial auctions.

The CL 214 provides definitions for the “place of transaction” (Article 11) for each of the taxable event scenarios, providing an extensive list to be analyzed on a case-by-case basis.

a.3) Calculation basis:

The CL 214 establishes that the calculation basis (articles 12 and 13) will be the full value of the transaction, which includes any increase resulting from: the adjustment of the value; interest; fines; increases and charges; discounts granted under condition; transportation fees charged as part of the value of the operation; transportation performed by the supplier itself or by its order; taxes; and public fees, among other items charged or received as part of the value, including insurance and fees.

There were also certain exclusions determined from the calculation basis:

• Amount of the IBS and CBS themselves
• Amount of the IPI
• Unconditional discounts
• Reimbursements or refunds received for amounts paid relating to transactions on behalf of, or in the name of, third parties, provided that the tax documentation for these transactions is issued in the name of the third party
• During the transition period, the amount of ISS, ICMS, PIS, and Contribution for the Financing of Social Security (COFINS).

a.4) Rates:

The IBS and CBS tax rates (articles 14 to 20)—among the major points of interest for taxpayers—will be set individually by each entity (federal government, states, and municipalities) through a specific laws, and the same rate must be adopted for all transactions involving goods or services. In the absence of a previously defined rate, the reference rate to be established by the Federal Senate will apply.

For the IBS, the rate levied on each transaction will correspond to the sum of the state of destination of the transaction rate and the municipality of destination (Article 15).

a.5) Contributors:

The CL 214 defines as IBS and CBS taxpayers (articles 21 to 26) the supplier that carries out transactions (i) in the development of an economic activity; (ii) in a habitual manner or in a volume that characterizes economic activity; or (iii) in a professional manner, even if the profession is not regulated. The purchaser is also a taxpayer, even if not classified as a supplier, in the acquisition of a seized or abandoned asset; in a public auction promoted by the government; or in a judicial auction, as well as those who—even if they do not meet these requirements—are expressly provided for in other situations addressed in the CL 214. The taxpayer is required to register with IBS and CBS.

a.6) Non-cumulativeness:

Both CBS and IBS are non-cumulative taxes, and the taxpayer can accrue credits of these taxes when payments are made of the amounts of IBS and CBS levied on transactions in which they are purchasers of goods or services (articles 28 to 37). In this way, IBS and CBS (Article 27) can also be paid by offsetting with IBS and CBS credits accrued by the taxpayer.

Another relevant point clarified by CL 214 is the definition of personal use and consumption for the purposes of prohibiting the accrual of credits (articles 47 and 57): the acquisition of jewelry, precious stones and metals; works of art and antiques of historical or archaeological value; alcoholic beverages; tobacco products; weapons and ammunition; and recreational, sports and aesthetic goods and services.

Goods for personal use and consumption are also considered to be goods and services acquired or produced by the taxpayer and supplied free of charge or at a value lower than the market value to the taxpayer, among others. This also applies to residential real estate or vehicles, and other goods and services related to their acquisition and maintenance. However, when they are deemed necessary for the taxpayer to carry out certain transactions, they are not considered as such.

a.7) modalities OF DEBT EXTINCTION:

The debts of IBS and CBS will be forgiven through the following methods (arts. 27 to 37):

• Payment by the taxpayer or responsible party, of the amount of the outstanding balance for each calculation period
• Financial liquidation (the so-called “Split Payment”)
• By the purchaser, if the payment by the supplier is made using a payment instrument that does not allow separation and collection under the terms of the Split Payment

a.8) Possibility of reimbursement of credit balance:

IBS and CBS taxpayers who accrue a positive tax credit at the end of the calculation period may request full or partial reimbursement (Article 39).

The reimbursement deadlines are as follows:

• 30 days, for requests from taxpayers enrolled in compliance programs developed by the IBS Management Committee and the RFB, whose credits relate to the acquisition of assets incorporated into the taxpayer's fixed assets or whose requested amount is equal to or less than 150% of the average monthly difference between (i) the IBS and CBS credits appropriated by the taxpayer; and (ii) the IBS and CBS debts on the taxpayer's transactions;
• 60 days, when dealing with credits as described above, but when the taxpayer is not enrolled in compliance programs developed by the IBS Management Committee and the RFB; and
• 180 days, in other cases.

In the event of an undue or excessive payment, reimbursement of IBS and CBS will only be owed to the taxpayer if the transaction did not generate credit for the purchaser, and if the taxpayer has met the legal requirements and the deadline established in the CTN to request a refund.

a.9) Imports:

Regarding IBS and CBS levied on imports and exports, the CL 214 reaffirms what has already been established in Constitutional Amendment No. 132/2023, which adopts the destination principle, meaning that all imports of goods or services from abroad will be taxed (articles 64 to 78).

CBS and IBS are due on the importation of intangible goods and services, which are considered:

• Import of services: A service provided by a resident or an entity domiciled abroad whose consumption occurs in the country (even if the supply is provided abroad), executed in the country, related to goods or real estate located in the country; or a service related to goods sent abroad for the execution of the service and returns to the country after its completion;
• Import of intangible goods (including rights): A supply made by a resident or an entity domiciled abroad, whose consumption in the country (even if the supply is provided abroad).

Material goods of foreign origin are taxed upon their entry into the national territory. The taxable event is considered to have occurred upon the release of goods submitted to dispatch for consumption, or in the release of goods subject to the special customs regime of temporary admission for economic use; and in the registration of the corresponding tax credit, for goods included as luggage, accompanied or unaccompanied; as well as goods listed in a manifest or other declarations with equivalent effect, whose loss has been verified by the customs authority; and also undeclared imported goods.

The rates are the same as those applicable to the acquisition of the respective goods in the country.

The place of import of the material goods corresponds to their place of delivery to the final recipient, including for international shipments, the main domicile of the purchaser who will store the goods or—if the goods were lost—the place where the loss was reported.

The calculation basis for of IBS and CBS on the import of material goods is the customs value added to the Import Tax; Excise Tax; SICOMEX Fee; AFRMM; CIDE; anti-dumping duties; countervailing duties; safeguard measures; and any other taxes, fees or contributions levied on the import of material goods until its release.

The tax rates on the import of material goods are the same as those levied on local transactions. The taxpayer is the importer, the one who promotes the entry of the good into the country; and the payment must be made until the delivery of the goods for dispatch or consumption.

a.10) Exports:

The exports of goods and services are immune from IBS and CBS (Article 79). However, exporters can accrue and use the credits related to transactions in which they are the purchaser of goods or services.

The CL 214 establishes immunity from IBS and CBS on fictitious export of tangible goods (i.e., without leaving Brazilian territory - Article 81), when the exported goods are, among other situations:

• Fully incorporated into goods that are only in the country temporarily, owned by a foreign owner, including under a temporary admission regime;
• Delivered in the country to be incorporated into a vessel or platform under construction or conversion contracted by a company based abroad—or into its modules—for subsequent use in the exploration, development and production of oil, natural gas and other fluid hydrocarbons; or
• Intended exclusively for the exploration, development, and production of oil, natural gas, and other fluid hydrocarbons, when sold to a company based abroad.

a.11) Customs procedures:

Regarding customs regimes (articles 84 to 98)—as well as taxes, regimes and exemptions for capital goods—the CL 214 provides for the suspension of the levy of CBS and IBS under the following regimes: (i) special customs regime for customs transit, in any of its modalities; (ii) special customs regime for storage; (iii) special customs regime for temporary admission in the country or temporary departure from the country; and (iv) a special customs regime for processing; in each case, subject to the regulation established by customs legislation.

The CL 214 also provides for the suspension of payment of IBS and CBS on certain imports and transactions subject to (i) Repetro-Sped; (ii) Baggage and International Shipments Regime; (iii) Export Processing Zones; (iv) Drawback; (v) the Tax Regime for Incentives to Modernize and Expand the Port Structure (Reporto); (vi) the Special Incentive Regime for Infrastructure Development (Reidi); and (vii) Tax Regime to Encourage Naval Economic Activity (Renaval).

a.12) Specific differentiated regimes:

CL 214 also regulates the differentiated specific regimes of IBS and CBS (articles 126 to 316), establishing their uniform application throughout the national territory and tying their validity to adjustments in the reference rates of the taxes or the granting of presumed credits, with the aim of rebalancing the revenue across administrative regions. Additionally, it defines the operations that should be subject to rate reductions:

• 30% reduction for administrators, lawyers, accountants, architects, and physical education professionals, among others
• 60% reduction for goods and services such as education services, healthcare services, medicines, food for human consumption, and agricultural and aquaculture products and inputs, among others
• Other annexes list the goods or services covered by these reductions.

Some IBS and CBS rates are reduced to zero, such as public transportation services, menstrual health care products, certain medicines, and devices for people with disabilities, among others.

Among the specific regimes of IBS and CBS established by CL 214, attention is called to the following specific regimes (articles 172 to 307):

(i) The single levy on operations with fuels, regardless of the purpose, whose specific rates shall be flat in the Brazilian territory and defined per product.¹ Article 180 of CL 214 prohibits the accrual of credits in the acquisition of fuels destined for distribution, commercialization or resale, while assuring the credits to the exporter of the fuels submitted to the single-levy regime.

(ii) The reduced taxation of low-carbon biofuels and hydrogen, whose rates of IBS and CBS shall be between 40% and 90% of the fossil fuel’s rates, as per § 1 of Article 175.

(iii) The differentiated regime to financial services whose calculation basis of IBS and CSLL shall be calculated considering the revenues and the deductions foresee in the CL 214 per type of service, as set forth in Article 185.

In addition, CL 214 has also created differentiated regimes for health care plans; prediction contests; transactions with real estate; cooperative societies; food supply operations performed by bars and restaurants; hotel services; amusement and theme parks; public passenger transport; tourism agencies; operations carried out by a football corporation (SAF); diplomatic missions and consular offices; and operations achieved by international treaties.

a.13) Transition rules:

Articles 342 to 408 set forth the rules for the transition to IBS and CBS, establishing mechanisms for the reduction of the taxes that are being replaced (ICMS, ISS, PIS, COFINS) until their expiration, and establish rules for the use of unappropriated or unused credits until the expiration of these taxes.

General rules on the Excise Tax (IS):

b.1) Subjected goods:

According to the CL 214 (articles 409 to 411), the Selective Tax (IS) will apply in a single-phase manner to the production, extraction, commercialization, or importation of goods and services harmful to health or the environment. These goods are: (i) vehicles; (ii) vessels and aircraft; (iii) smoking products; (iv) alcoholic beverages; (v) sugary beverages; (vi) extracted mineral goods; and (vii) lottery and fantasy sports. The goods referred to in items iii and iv are subject to the Selective Tax when packaged in primary packaging; i.e., that which is in direct contact with the product and intended for the final consumer.

b.2) Credits:

It is forbidden to use tax credits from previous transactions or to generate credits for subsequent transactions.

b.3) Tax triggering event:

The tax triggering event for the IS (article 413) is: (i) the first supply of the asset; (ii) the public auctioning of the asset; (iii) the non-costly transfer of the mineral extracted or produced; (iv) the incorporation of the good into fixed assets of the manufacturer; (v) the extract of mineral assets; (vi) the consumption of the good by the manufacturer; (vii) the provision or payment of the service, whichever occurs first; or (viii) the import of goods and services.

b.4) Non-incidence:

The IS is not levied (Article 413) on: (i) exports abroad of the goods harmful to health or the environment; (ii) transactions with electricity and telecommunications; and (iii) transactions with goods and services with a 60% reduction in the standard rate of the IBS and CBS.

b.5) Calculation basis:

The IS calculation basis (articles 414 to 418) is:

• The sale value in the sale;
• The auction value;
• The reference value in the non-costly transaction or consumption of the good;
• The reference value in the extraction of mineral assets;
• The reference value in the marketing of smoking products;
• The entity's own revenue that promotes prediction contests and fantasy sport activities; or
• The book value of the good incorporated into fixed assets.

The tax base does not include the amount of CBS, IBS, or the Selective Tax itself incurred in the transaction, as well as unconditional discounts.

b.6) Rates:

The IS tax rates (articles 419 to 423) will be established by ordinary law, with a limit of 0.25% for transactions with extracted mineral, and reduced to zero for natural gas used as an input in an industrial process.

b.7) Taxpayer:

The IS taxpayer, according to the CL 214 (articles 424 and 425), is:

• The manufacturer when the goods are first commercialized, incorporated into fixed assets, handed over in an unencumbered transaction, and consumed;
• The importer when goods of foreign origin enter the national territory;
• The auctioneer;
• The extracting producer; or
• The service provider, even if resident or domiciled abroad, in the case of prediction and fantasy sport activities.

IBS MANAGEMENT COMMITTEE:

The CL 214 created (articles 480 to 484) the IBS Management Committee (CGIBS), a technical and operational public entity operating under a special regime, headquartered and subject to jurisdiction in the Federal District, endowed with technical, administrative, budgetary, and financial autonomy. This committee is not affiliated, supervised, or subordinate to any public administration body, and will exist until its dissolution on December 31, 2025.

Among the provisions of CL 214 are rules related to the IBS Unified Regulation, which must be approved by a joint act of the CGIBS and the Federal Executive Branch. This regulation will set uniform rules for tax compliance, guidance, self-regulation, and differentiated treatment for taxpayers participating in IBS compliance programs established by federal entities.

It will also define the maximum period for conducting administrative collection activities, provided it does not exceed 12 months from the final establishment of the tax credit. Regarding the rules common to both IBS and CBS, they must be approved by a joint act of the CGIBS and the Federal Executive Branch.

The Superior Council of the CGIBS, which is the Committee’s highest decision-making body, will be composed of representatives from each state and the Federal District, as well as representatives of the municipalities and the Federal District, and will be established by May 16, 2025 (120 days from the publication date of CL 214).

VETOES:

Below are the vetoes presented by the Head of the Executive Branch, which will be subsequently analyzed by the National Congress.

Vetoed Provision	Content
Article 26, V	Established that investment funds would not be contributors to the IBS and CBS, except in specific situations.
Article 26, X	Established that wealth funds established in accordance with Law No. 13,800/2019 would not be contributors to the IBS and CBS.
Article 26, § 1º, III	Allowed real estate investment funds to opt for the regular regime of IBS and CBS.
Article 26, § 5º	Defined criteria for Real Estate Investment Funds (FIIs) and Investment Funds in Agribusiness Production Chains (Fiagros) to be considered contributors under the regular tax regime.
Article 26, § 6º	Established when FIIs and Fiagros would not be contributors, depending on the composition of the shares.
Article 26, § 8º	Anticipated future regulation to include new goods and services in the taxation of IBS and CBS.
Article 36, § 2º	Defined the joint liability of the buyer for the IBS and CBS when the payment was made by the buyer itself.
Article 138, § 4º	Anticipated an annual adjustment for the rural producer regarding agricultural and aquacultural inputs that were also exempt from IBS and CBS.
Article 138, § 9º, II	Established the termination of the deferral due to the annual adjustment indicated in the provision.
Article 183, § 4º	Excluded organizations managing investment funds from the special regime for financial services providers.
Article 231, § 1º, III	Provided for reduced rates of IBS and CBS for credits to service importers and financiers who also provided other specific types of financial services.
Article 252, § 1º, III	Equated contracts that allowed the use of physical space, for a fee, to a lease, a paid assignment, or a real estate lease.
Article 332, § 2º	Would allow tax notifications through other means if it was not possible to use the Electronic Tax Domicile (DTE).
Article 334	Various provisions regarding notification related to the tax administrative process.
Article 413, I	Indicated that the Selective Tax would not apply to exports.
Article 429, § 4º	Provided for a penalty due to the sale, shipment, or commercialization of tobacco to a company that was not a manufacturer of cigars, cigarettes, or little cigars, or smoking.
Article 444, § 5º	Would allow the appropriation of IBS credits on imports by a taxpayer eligible for the incentives of the Manaus Free Trade Zone.
Article 454, § 1º II	Provided for a presumed CBS credit for products subject to a zero rate of PIS and COFINS, manufactured in the Manaus Free Trade Zone or with a technical-economic project approved by SUFRAMA.
Article 462, § 5º	Provided for IBS credits for authorized entities in Free Trade Areas benefiting from presumed credit related to the importation of goods for in-person resale.
Article 494	Dealt with criteria for acts of the IBS Management Committee and the head of the Federal Government’s Executive Branch related to the five-year evaluation of the IBS and CBS.
Article 495	Provided for the creation of the School of Treasury Administration (ESAF) in the Ministry of Finance.
Article 517 (in the part that includes item 'b' to paragraph XII-A, of § 1º, of article 13 of Complementary Law 123/03.)	Provided for the amendment of Complementary Law No. 123/2006, which governs the Simples Nacional, related to operations subject to the substitution tax regime within the scope of IBS and CBS.
Article 536	Amended Law No. 1,907/2009 with regard to the School of Treasury Administration.
Annex XI, Items 1.4, 1.5, 1.8 e 1.9	Excluded goods and services related to sovereignty and national security, which were previously subject to a zero rate of IBS and CBS: 1.4: Security services not classified in previous subcategories 1.5: Security system services 1.8: Insurance for cases involving devices with personal data, stolen or robbed 1.9: Services for protection and reimbursement of unauthorized banking transactions due to theft, robbery, or kidnapping

For more information on this newsletter, please contact our tax team.

 

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¹ Gasoline, anhydrous ethanol fuel (EAC), diesel oil, biodiesel (B100), liquefied petroleum gas (LPG), including liquefied gas derived from natural gas (GLGN), ethanol hydrate fuel (EHC), aviation kerosene, fuel oil, processed natural gas, biomethane, vehicular natural gas (NGV), and other fuels specified and authorized by the National Petroleum, and the Natural Gas and Biofuels Agency (ANP).