Brazil is implementing an ambitious Brazil VAT reform that will introduce a new Value-Added Tax (VAT) system. This represents a profound change to the country’s tax rules. Consequently, it has significant implications for companies offering services to Brazilian consumers, especially those using local payment methods like Pix and boleto.

If your company operates abroad but uses local payment rails to reach Brazilian clients, then this guide is your go-to resource to understand the changes ahead and prepare with confidence.

Why the Brazil VAT Reform Matters for Merchants

The new legislation simplifies the current tax structure. Specifically, it replaces five existing taxes (PIS, Cofins, IPI, ICMS, and ISS) with two value-added taxes:

• CBS (Contribution on Goods and Services): A federal-level tax.

• IBS (Goods and Services Tax): A state and municipal tax.

In addition, the government may apply a Selective Tax (IS) to products or services it considers harmful to health or the environment. The most significant impact is that foreign merchants who sell into Brazil must now collect or pay VAT, even without a local Brazilian legal entity.

The “Place of Consumption” Rule for Foreign Sellers

Under the new VAT rules, the place of consumption triggers the obligation to collect tax. This means if your customer is in Brazil, the transaction is subject to the new tax, regardless of your company’s location. In other words, the customer’s location defines the tax responsibility.

The new legislation explicitly treats foreign merchants as taxpayers when they serve Brazilian consumers. While specifics are still evolving, future regulations may require payment service providers like epag to take on formal responsibilities, such as reporting, registration, or even withholding VAT on behalf of merchants.

Brazil VAT Reform: Timeline and Financial Impact

Brazil will roll out the new VAT model gradually. As a result, the government has scheduled its full implementation for 2033.

• 2024: Congress reviews the new regulations.

• 2026: A test charge with a symbolic rate begins.

• 2027: The CBS begins as PIS and Cofins are phased out.

• 2029-2032: The government gradually reduces ICMS and ISS as it expands the IBS.

• 2033: The new model takes full effect.

To understand the potential shift, consider an impact simulation with estimated rates up to 27%. A sale of €100 that currently incurs €0 in this tax could face a tax cost of €27 in the future. Therefore, it is essential to revisit your pricing and tax strategies to maintain healthy margins.

How to Prepare for the Upcoming Changes

The new VAT model is not a distant theory; it is unfolding in real time. For any business offering services to Brazil, the direction is clear, and the time to prepare is now.

You should:

• Reassess how you structure your prices.

• Understand where new tax obligations may arise.

• Review the potential role of your payment partner in the compliance chain.

• Prepare for evolving regulations that could impact your margins.

Stay Ahead with an Expert Partner

At epag, we have followed this process closely from day one. With experienced legal and finance teams, we already help our partners navigate the Brazil VAT reform, build the right strategies, and prepare for the new tax landscape.

We are here to help you stay ahead of the curve and turn complexity into clarity. If your business serves the Brazilian market, let’s talk.