SMALL BIG 4

In response to upcoming tax reform measures, the Brazilian government is implementing changes to the layouts of electronic invoices (e-invoices).

In March 2025, the National Council of Finance Policy (ENCAT) released an updated version of Technical Note 2025.002. This revision introduces new fields and validation rules to accommodate the future implementation of the new Tax on Goods and Services (Imposto sobre Bens e Serviços – IBS) and the Social Contribution on Goods and Services (Contribuição Social sobre Bens e Serviços – CBS).

The government also published an updated implementation timeline, as follows:

The changes introduced by Technical Note 2025.002 will be available in the testing environment of the e-invoice portal. This anticipates the previous rollout date of September 1, 2025, and extends the testing period for taxpayers.

During the October to December 2025 period, the changes will be deployed to the production environment, and the use of the new layouts will become mandatory. However, taxpayers will not be required to complete the new fields related to IBS and CBS during this period, as those taxes will only take effect in 2026.

The Brazilian tax reform represents a significant shift towards a modernized, VAT-like system. However, the 7-year transition means businesses must deal with the complexities of the old system while adapting to the new one.

Brazil's long-anticipated tax reform, designed to simplify one of the world's most complex tax systems, introduces two new taxes: the Contribution on Goods and Services (CBS) at the federal level and the Tax on Goods and Services (IBS) at the state and municipal levels. These will gradually replace several existing taxes over a seven-year transition period, ultimately aligning Brazil's tax framework with international best practices, increasing transparency, and reducing litigation.

Although full implementation will span nearly a decade, companies must begin adapting now. The reform will significantly impact pricing strategies, cash flow management, and financial reporting. A key shift lies in the exclusive nature of CBS and IBS: unlike current levies such as PIS and COFINS, which are embedded in costs, CBS and IBS will function more like value-added taxes (VATs).

As a result, entities will see structural changes in how indirect taxes affect their financial reporting:

However, the transition to Brazil's new tax regime is anything but simple. While CBS and IBS are set to replace existing taxes such as PIS and COFINS, the current system will remain in effect throughout the seven-year transition period. As a result, businesses will need to maintain compliance with both frameworks.

"One of the reform's most important provisions is the mandatory exclusion of legacy taxes—including PIS, COFINS, ICMS, and ISS—from the taxable base of CBS and IBS. This rule is critical to prevent tax cascading."

To successfully manage this dual tax environment, companies operating in Brazil should focus on three key areas:

Over a decade ago, Brazil introduced sweeping protectionist measures in its automotive sector, promising to stimulate local manufacturing, secure employment, and enhance product quality.

Instead, the result has been a wave of plant closures, job losses, and stagnation in both production and technological progress. Today, Brazilian consumers often pay up to 50% more for the same vehicle models sold in neighboring countries — despite receiving cars that frequently lag behind in global technology standards.

As the United States contends with new tariffs imposed under former President Donald Trump, auto industry executives and analysts are revisiting Brazil's experience as a cautionary example. Once the world's fourth-largest auto market, Brazil now illustrates the long-term costs of protectionist policies.

"Brazil is a good case study in assessing the effects of protectionism. Tariffs often generate inefficiencies. Protected markets tend to fall behind."

- Philipp Schiemer, former head of Mercedes-Benz in Brazil and Latin America

The turning point came in 2011, when a strong economy and a rising currency prompted a surge in vehicle imports, alarming the then-governing Workers' Party, which has close ties to automotive labor unions. In response, then-President Dilma Rousseff implemented a 30-percentage-point tax increase on imported vehicles, halved taxes on domestically produced cars, and pressured automakers to freeze job cuts.

While imports fell and local production briefly surged — reaching a record 3.71 million vehicles in 2013 — many global manufacturers were faced with a difficult choice: exit the market or invest in local manufacturing. Several, including Mercedes-Benz, opted to build new factories in Brazil. However, most struggled to replicate the cost-efficiency of their global supply chains.

As inflation accelerated and economic growth slowed, domestic demand weakened. With limited international competitiveness, Brazilian plants were unable to pivot to exports. Mercedes-Benz ultimately closed its only car plant in the country just four years after opening it. In 2021, Ford also ceased local production, ending a 100-year presence in Brazil.

As of last year, Brazil's auto production stood at 2.55 million vehicles — down by a third from its 2013 peak. Employment in the sector has declined by roughly 20% over the same period.

"Brazil's automotive experience underscores the long-term risks of shielding domestic industries from global competition. Rather than fostering innovation and sustainable growth, excessive protectionism can lead to inefficiencies, reduced competitiveness, and lasting structural decline."

The National Telecommunications Agency (Anatel) has confirmed the revocation of Norma 004/95, which since 1995 had classified internet services as value-added services (Serviços de Valor Adicionado – SVA).

This decision, now definitive, will come into effect on January 1, 2027, as part of a broader regulatory simplification agenda.

The change removes the legal distinction between internet services and traditional telecommunications services. As a result, internet services may become subject to the same regulatory and tax obligations as telecom services—particularly the state-level ICMS tax.

Although the measure is confirmed, the delayed implementation provides a window for adaptation and for any legal or political developments that may affect its rollout. Anatel has encouraged stakeholders to proactively engage with regulators and policymakers to assess the implications of the reform and contribute to the regulatory debate during the transition period.

On 22nd of August 2025, BPC Partners will be in PANAMA CITY to meet potential clients and investors into the Brazilian market.

And on 25th of August 2025, BPC Partners will be in SÃO FRANCISCO / PALO ALTO. Take this opportunity to book a meeting with one senior partner of BPC Partners.

These roadshow visits represent our commitment to providing personalized, face-to-face consultations with companies and investors looking to navigate Brazil's complex business environment. Our senior partners will be available for one-on-one meetings to discuss your specific needs and challenges.