Tax reform implications and opportunities

Brazil’s new tax system will replace the current system of five complex taxes — the tax on Circulation of Goods and Services (ICMS) and Service Tax (ISS); and the tax on Industrialized Products (IPI), Program of Social Integration (PIS), and Contribution for the Financing Social Security (COFINS) — with a dual-Value Added Tax (VAT) system comprised of three new tax schemes: the CBS (federal tax), the IBS (state and municipal tax), and the IS (Selective Tax). The CBS and IBS are dual-VAT taxes; while the IS a separate single-stage tax that applies to goods and services deemed harmful to health or the environment, such as alcohol, tobacco, and various vehicles and business activities that emit excess carbon.

For law firms, the eight-year rollout period can be viewed as a gradually evolving framework with recurring opportunities each year to advise and guide clients through each stage of the process.

New rates and rules

For example, the new CBS and IBS rates are being introduced in 2026 at 0.9% and 0.1%, respectively, as part of the initial test phase. By 2033, however, the full CBS rate is estimated to be approximately between 9% and 10%; and the IBS rate will be approximately 18% to 22%.

This will result in a combined dual-VAT target rate of approximately 29% to 30%, but that rate is not yet fixed. Ultimately, however, the effective tax burden under the new regime will be determined by the applicable tax rate combined with the taxpayer’s entitlement to claim tax credits.

In 2027, however, the federal CBS side of the new VAT will be almost fully implemented and PIS/COFINS will be abolished. (The state/municipal IBS side of the VAT will remain at the test-phase rate of 0.1% until 2029, after which it will gradually increase.) Further, 2027 is also the year the new IS selective tax on harmful products goes into effect. And gradual changes to tax rates and reporting requirements will occur every year until 2033.

During this period, law firms will be called upon to provide the legal support and advice necessary for their clients to navigate this transition smoothly. And, depending on the sector and scope of their clients’ businesses, the opportunities for new legal work can be expected to stretch across multiple disciplines and practice areas.

Areas of opportunity

Some areas which are likely to see increased need for legal expertise include:

Contract review — All relevant contracts will need to be reviewed by legal experts to address and amend tax-specific language and any other factors impacted by the reforms.

International customs and trade — The new VATs (CBS and IBS) replace Brazil’s largely origin-based taxes with destination-based taxes and include new product/service classifications, tax rules, and codes, among many other changes, all of which have potential legal consequences that clients need to understand.

Regulatory updates — Companies have cited that keeping up with the ever-changing legislative and regulatory landscape is one of their biggest compliance challenges. One huge issue is that companies will be required to keep track of tax calculations for both the old system and new system side-by-side during the transition period.

Credit controls — Tax reform will change how credits are calculated and managed, which could become one of the most important legal issues for many companies, particularly in the first few years of reform.

Government relations — Avoiding penalties, monitoring compliance, negotiating disputes, and liaising with tax authorities will all be crucial client services for law firms.

Litigation and appeals — Law firms will of course be involved in any legal disputes, appeals, or litigation involving their clients.

Expected impact on clients

The fact is, each year of the rollout will feature new compliance obligations, rule changes, and other moving targets, all of which may require legal assistance. The key, from a legal standpoint, is understanding the challenges that clients are going to face and working proactively to acquire the knowledge and systems necessary to address them.

Indeed, survey respondents felt their clients were likely to struggle most with constant legislative updates and decisions about how to respond to changes in their tax burden. Law firms also expect to be helping their clients manage interpretive differences between states/municipalities (Comitê Gestor) and federal authorities (Receita Federal) as well as questions about credit allocations from the old system to the new, destination-based VAT framework.

Plenty of litigation is expected as well. Respondents were almost unanimous in expecting tax reform to result in a significant increase in both judicial and administrative caseloads. More than three-quarters of respondents (76.5%) say they expect an increase in judicial cases, and even more (79.4%) say they expect a rising number of administrative cases.

Areas in which disputes may arise include:

• tax classification and rates
• co-existing tax systems that are going through transition
• credit eligibility, refunds, and documentation
• destination and sourcing of goods or services
• sector-specific regulatory challenges
• import/export rules and classifications
• contract disputes, and
• jurisdictional issues.

The good news for lawyers is that the number of tax-related situations with potential legal implications is almost limitless. The first few years of tax reform are likely to be the most active from a legal standpoint. However, the extent to which the clients of any given law firm are affected by tax reform will depend on the sector, nature, and scope of the client’s business.

Preparation and tools

Respondents say their law firms intend to use a variety of means for keeping up with the information and obligations related to tax reform. Some involve making better use of resources already at the firm’s disposal, while others require a certain amount of investment, particularly in the areas of technology and talent.

‍

Since 2025, lawyers have somewhat broadened the range of preferred information sources they use to stay current. The trends are showing that lawyers have less reliance on technical reading alone and are modest increasing gathering information from other sources such as webinars, social media, and consulting services.

And the technologies that respondents say they would find most useful for meeting the obligations of tax reform are modeling and calculation tools, followed by AI-derived answers to questions and subject-specific articles.

‍

To meet reform-related implementation needs, many respondents say their firms are making greater investment in all areas: technology, processes, talent, consultants, and audit & compliance.

When asked about the expected timeline for these investments, more than 90% of respondents believe their firm’s technology investment would peak over the next two years, then taper off after that.

The same dynamic holds for process updates and talent hiring & training, although most respondents say they expect their firms to sustain investments in talent and processes for an additional two years. More than half of respondents also expect their firms to sustain investment in outside consultants and audit & compliance over the next four years.

Impact on law firm management and operations

Brazil’s new tax system won’t just affect lawyers’ clients, either — it will also impact business operations within law firms themselves.

For example, legal services qualify for a 30% reduction from standard CBS/IBS tax rates, but firms must meet certain qualifications to claim the reduction. Also, law firms outside Simples Nacional — Brazil’s simplified tax regime for micro- and small businesses — could face a higher indirect-tax burden under the new regime because credits under the new regime are calculated differently, both for law firms and their clients. Some smaller firms may even find it more advantageous to accept the regular CBS/IBS rate instead of using Simples Nacional.

The time to prepare is now

For Brazil’s legal community, tax reform represents a once-in-generation business opportunity for firms to expand their legal support and services, However, the effort required to adequately prepare should not be underestimated. Firms that want to accelerate their preparations for tax reform should follow these basic steps:

‍