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Starting January 1, 2026, the consumption tax reform will begin its transitional phase, requiring companies to highlight IBS and CBS on invoices, during a testing period with no immediate tax increase
A major tax change officially began on January 1, 2026, when the consumption reform started to concretely appear in fiscal documents. Since then, IBS and CBS have begun to be highlighted on electronic invoices, marking the first year of the transitional phase. Thus, although there is no immediate tax increase, new operational and technological obligations are already affecting companies and governments throughout Brazil.
Since the beginning of this process, the change has essentially bureaucratic characteristics. Companies, therefore, started to highlight IBS and CBS in documents such as NF-e, NFC-e, and NFS-e. Additionally, new accessory obligations came into effect, including specific declarations for differentiated regimes and, in the future, information provided by digital platforms. At the same time, delays in regulations increase uncertainties and make adaptation more costly.
New VAT Model Replaces Five Historic Taxes
First of all, the reform creates a Dual Value Added Tax (VAT). This model combines the Contribution on Goods and Services (CBS), under federal authority, and the Tax on Goods and Services (IBS), intended for states and municipalities. Together, these taxes will gradually replace PIS, Cofins, IPI, ICMS, and ISS, focusing on simplification and reduction of accumulated distortions over decades.
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According to tax attorney Bruno Medeiros Durão, the new system brings Brazil closer to best international practices, by adopting a non-cumulative and destination-based taxed VAT. This way, there tends to be more predictability for producers and investors.
How the Charging of IBS and CBS Will Work
In this new arrangement, both IBS and CBS will function in a non-cumulative manner. Thus, companies will be able to take advantage of tax credits paid at all stages of the chain, including on goods for use and consumption. Furthermore, taxation will occur at the place of consumption, no longer at the origin.
As a result, the model aims to reduce federative conflicts and increase transparency in revenue collection.
Estimated Rates and Tax Burden Neutrality
Currently, estimates indicate that the total dual VAT rate will be between 26.5% and 28%, combining IBS and CBS. This level has been calculated to maintain tax burden neutrality. Within this projection, the CBS would have a rate close to 8.8%, while the IBS would be around 17.7%, divided between states and municipalities. The definitive percentages still depend on complementary regulations.
Sectors Will Experience Different Impacts During the Transition
Although the proposal aims for neutrality, the effects will not be the same for everyone. The reform provides for differentiated regimes, with reduced rates for health, education, medications, and basic food basket, in addition to cashback mechanisms for low-income families. Nevertheless, some segments may face an increased tax burden.
According to tax attorney Adriano de Almeida, the services sector, which currently operates with lower burdens, is likely to feel more significant changes during the transition.
What Changes, in Practice, in 2026
Finally, 2026 officially marks the beginning of the testing phase of the tax reform. Companies are required to highlight IBS and CBS on invoices, however without actual tax increases. The experimental rates have been set at 0.9% for CBS and 0.1% for IBS, amounts that may be offset with PIS and Cofins throughout the adaptation period.
In light of this new scenario, technical adaptation has already begun. Do you believe that companies are really prepared to deal with the demands of the new VAT starting in 2026?
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