Brazil

The Brazilian Supreme Federal Court (STF) confirms that the ICMS (State VAT) should not be included in the taxable basis of PIS and COFINS (Federal VATs)

The STF concluded the long-awaited judgment of the motion for clarification in the process in which it was determined that the ICMS amount informed by the companies in their invoices should not be included in the taxable basis of the PIS and COFINS.

The understanding of the STF allows companies to stop including such amount of ICMS in the PIS and COFINS calculation basis as from 15 March 2017. For companies that did not file a judicial or administrative measure until 15 March 2017, the retroactive recovery of the undue amount is limited until that date.

Brazilian Double Tax Treaties (DTTs) recent updates

Brazil–Sweden: The April 2025 amending protocol modernized the treaty by updating definitions of tax residence, refining withholding tax rules for dividends, interest and royalties, expanding information‑exchange mechanisms, and adding anti‑abuse clauses, offering clearer boundaries on withholding and stronger protections against treaty shopping for structures involving both countries.

New transfer pricing rules

On 29 December 2022, the Brazilian government issued the Provisional Measure (MP) 1152/22 seeking alignment with the arm’s-length principle in accordance with the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The MP was amended and ratified by the Congress, a process that was concluded on 10 May 2023. Afterwards, the MP was converted into Law 14,596, published on 15 June 2023.

Law 14,596 is mostly principles-based and delegates substantial authority to regulations issued and to be issued by the Brazilian Federal Revenue Office (RFB), through Normative Instructions (INs).

IN/RFB 2,161/2023, the first set of regulations to rule Law 14,596/23, provides guidance on the interpretations of the arm’s-length principle, related parties, controlled transactions, delineation of transactions, methods, and documentation (the procedures related to the filings of the reports, among other measurements and future implementation of transfer pricing return); however, it does not regulate important ’specific provisions‘ from the new law that, as per the RFB, will be addressed in future INs.

Partial adoption of Pillar Two (QDMTT) via Additional Social Contribution - CSLL

Brazil has enacted Pillar Two rules through Federal Law No. 15,079/2024 (published at the end of December 2024), which introduces a Qualified Domestic Minimum Top‑Up Tax (QDMTT) implemented as an Additional Social Contribution on Net Profits (Additional CSLL), effective 1 January 2025.

The Federal Revenue Service (RFB) issued Normative Instruction (IN) 2,228/2024 in October 2024 to operationalize the QDMTT mechanics, and later aligned guidance following enactment of Law 15,079. On 18 August 2025, the OECD/G20 Inclusive Framework recognized Brazil’s Additional CSLL as a QDMTT and confirmed QDMTT Safe Harbour status from FY 2025, providing significant coordination relief vis‑à‑vis foreign IIR/UTPR computations and preserving Brazil’s primary right to collect top‑up in respect of Brazilian excess profits.

Scope and design. Brazil’s Pillar Two legislation adopts only the domestic QDMTT for now (via Additional CSLL) and does not implement the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR). Law 15,079 applies to MNE groups with €750m+ consolidated revenue (tested under the standard “two of the prior four years” rule), sets the 15% minimum effective rate benchmark, incorporates substance‑based income exclusions, and aligns the top‑up due date to the last business day of the seventh month after fiscal year‑end (e.g., July 2026 for FY 2025).

Brazil’s existing CFC/full‑inclusion mechanics. Brazil’s longstanding approach of annual full‑inclusion of foreign profits (without deferral) under domestic CFC rules continues to apply; the QDMTT (Additional CSLL) operates alongside that framework to ensure a 15% jurisdictional minimum in Brazil and mitigate exposure to foreign IIR/UTPR top‑ups due to the QDMTT Safe Harbour status.

Brazil VAT / excise reform

Status and legal framework. On 20 December 2023, Brazil approved the constitutional amendment that launches a comprehensive consumption‑tax reform, replacing indirect (federal, state and municipal) taxes with a dual VAT and a selective excise. In 2025–2026, the reform was further detailed by Complementary Law No. 214/2025 (implementing CBS/IBS) and by legislation derived from PLP 108/2024 (creating the IBS Management Committee—CGIBS and refining operational/administrative rules).

The main changes were the elimination of four taxes (Social Security Financing Contribution - COFINS, Contribution to the Social Integration Program - PIS, State Indirect Tax - ICMS, and Local Services Tax - ISS), reduction of the general IPI (Federal Tax on Manufactured Products) rate to zero, and the creation of three new taxes: Federal Contribution on Goods and Services (CBS), Subnational Tax on Goods and Services (IBS) shared by states and municipalities, and (iii) a Selective Excise (IS) focused on goods/services harmful to health or the environment.

The transition period will be marked by a coexistence of two tax systems, with old and new taxes collected in parallel for seven years:

• 2026: IBS shall have a rate of 0.1% and CBS a rate of 0.9%, whereas the amount collected shall be offset against PIS and COFINS amounts due.
• 2027:
  • Extinction of PIS/COFINS, provided that CBS is created.
  • Reduction of IPI rate to zero, except in relation to products that have industrialisation in the Manaus Free Trade Zone (ZFM).
  • IS collection begins.

• 2028:
  • IBS will be charged at the State and Municipal rates of 0.05% each.
  • CBS rate will be reduced by 0.1%.

• 2032:
  • ICMS and ISS rates will be reduced in the following proportions: 9/10 in 2029; 8/10 in 2030; 7/10 in 2031; and 6/10 in 2032.
  • ICMS and ISS benefits or incentives will be reduced in these same proportions until 2032, when they shall be effectively discontinued.
• 2033:  Full adoption of the new consumption tax system.

Reference rates: Current technical material points to a combined target VAT burden around ~27.5–28% once fully implemented (CBS ≈ 8.8% + IBS ≈ 17.7%), subject to final sectoral treatments and exemptions.

After the transition period, the expected simplification and rationalisation of the consumption tax regime is expected to be achieved, since the VAT reform:

• unifies the municipal, the state, and two federal taxes on consumption into the same type of VAT, although divided into a Federal and a Subnational VAT ('dual VAT')
• brings transparency, with the tax burden visible to taxpayers and consumers, and taxation at destination, eliminating the so-called 'fiscal war' between States, contributing to business decisions mainly driven by economic-financial rationale rather than tax advantages
• implements a fully non-cumulative system, eliminating tax leakages that are harmful to the competitiveness of Brazilian companies
• reinforces the tax relief on exports and investments through a reimbursement mechanism for accumulated credits
• contributes to reducing the country's tax litigation and compliance costs, and
• creates a fund to compensate companies benefiting from tax benefits related to ICMS, respecting the return on investments legitimately planned based on such incentives.

Withholding income tax (WHT) on dividends

Starting 1 January 2026, Brazil reinstates withholding income tax (WHT) on dividends under Law No. 15,270/2025.

Dividends paid to non‑residents are subject to a 10% WHT, while dividends paid to Brazilian‑resident individuals are taxed at 10% when monthly receipts from the same company exceed BRL 50,000; distributions below this threshold remain exempt.

Dividends paid between Brazilian legal entities continue to be exempt. Profits generated up to 31 December 2025 remain exempt if their distribution is formally approved by year‑end 2025 and paid according to the approved terms (including settlement until 2028).

These new rules mark the end of Brazil’s long-standing dividend exemption and apply to distributions made from 2026 onward.