What are the transition rules for the Tax Reform?

Transitional rules in the tax reform

A Constitutional Amendment 132/2023 introduced a comprehensive tax reform, bringing with it the gradual implementation of new taxes. The timetable for implementing these changes has already been defined and is scheduled to begin in 2026, with completion expected in 2033. During this period, the national tax system will go through a transition process, where the new taxes will be gradually introduced, temporarily coexisting with the old taxes that will only be eliminated at the end of the established deadlines. The operational details regarding the collection and provision of information to the tax authorities during this transition phase will be regulated shortly.

Below is a summary of the transition rules year by year:

Year 2026

Collection of IBS - Goods and Services Tax at a rate of 0.1%.

Collection of CBS - Contribution on Goods and Services at the rate of 0.9%, offsetting this payment against the contributions due to PIS and COFINS.

Year 2027

IBS will be charged at the state rate of 0.05% and the municipal rate of 0.05%.

Taxes will be abolished PIS/COFINSThis will be completely replaced by CBS, which will be charged at a rate to be defined by a future Complementary Law with a reduction of 0.1%.

Collection of IS - Selective Tax (rates still to be defined).

O IPI will have their rates reduced to zero, except in relation to products that have incentivized industrialization in the Manaus Free Trade Zone, according to criteria that will be established in a complementary law.

[Article]: Learn why fiscal management is important  

Year 2028

It maintains the same standards as in 2027.

[Article]: 7 accounting mistakes that can put your company at risk

Year 2029

The ICMS and ISS rates defined according to each state and municipal law will be reduced by 10%. The IBS rate will therefore have to be set in such a way that the states' revenue from ICMS and the municipalities' revenue from ISS is equivalent to the reduction in these taxes.

[Article]: Fiscal complexity in Brazil

Year 2030

The rates of ICMS e ISS will be reduced by a further 10%, bringing the total reduction to 20%. The IBS rate will have to be adjusted so that there is no loss of revenue for states and municipalities.

[Article]: Here's how the tax administrative process works

Year 2031

The ICMS and ISS rates will be reduced by a further 10%, giving a total reduction of 30%. The IBS rate will have to be adjusted so that there is no loss of revenue for states and municipalities.

[Article]: A company's tax obligations

Year 2032

The ICMS and ISS rates will be reduced by a further 10%, giving a total reduction of 40%. The IBS rate will have to be adjusted so that there is no loss of revenue for states and municipalities.

[Article]: What is Presumed Profit?

Year 2033

ICMS and ISS will be abolished. The IBS rate will have to be adjusted so that there is no loss of revenue for states and municipalities.

[Article]: How do taxes work in Presumed Profit?

Conclusion 

In summary, Constitutional Amendment 132/2023 represents a significant change in the country's tax landscape, with the implementation of new taxes over a period of seven years. This reform is an attempt to simplify the national tax system and make it more efficient. However, the transition will be a challenging period for companies and taxpayers, as they will have to deal with the coexistence of old and new taxes until 2033. It is essential that everyone is aware of the regulations that will be put in place to ensure compliance with tax obligations during this transition phase. The tax reform is an important step towards a fairer and more effective tax system, but its implementation will require constant adaptation and monitoring by economic agents and the government itself.

If you need to rely on experienced accounting advice, capable of providing the best strategies for your company to improve its financial performance, get to know CLM Controller's solutions now.