CBS Rate, Workweek Reform, Stock Options & Tax Rulings Update

On October 28, 2026, Brazil's Federal Court of Accounts (TCU) approved a proposed reference rate of 11.3% for the new Contribution on Goods and Services (CBS) — significantly above the previous estimate of 9.21%.

Starting January 1, 2027, the CBS will replace the existing PIS and COFINS contributions for companies operating under both the Lucro Presumido and Lucro Real tax regimes, moving both categories to the same non-cumulative, VAT-style framework.

The proposed 11.3% rate still requires final determination by the Brazilian Senate. The legislation also provides for a transitional reduction of 0.1 percentage point in 2027, meaning a confirmed 11.3% reference rate would generally translate into an applicable CBS rate of 11.2% for that year, subject to specific tax treatments.

The introduction of new consumption taxes and the split-payment mechanism will fundamentally change how businesses manage their tax obligations.

Under the traditional system, businesses generally receive the full invoiced amount and subsequently pay the corresponding taxes. The split-payment mechanism is designed to separate the tax component of qualifying transactions and transfer it directly to the tax authorities during payment processing — a change that may significantly affect corporate cash flow, working capital requirements and payment reconciliation processes.

An important decision for multinational companies offering equity-based incentive plans to employees and executives.

On October 14, 2026, Brazil's Superior Court of Justice (STJ) delivered a significant ruling on the social security treatment of stock-option plans. Under Binding Precedent Theme 1,379, the Court confirmed that stock options with a genuine commercial nature should not be classified as employment remuneration for employer social security contribution purposes at the time the options are exercised. The ruling also addresses certain contributions payable to third-party entities.

Many multinational companies operating in Brazil offer long-term incentive plans to senior executives and key employees, often involving stock options granted by foreign parent companies. Brazilian tax authorities have historically challenged such plans, arguing that gains realized by employees should be treated as employment-related remuneration. The STJ's decision provides greater legal clarity for genuine stock-option arrangements involving an investment component and economic risk.

A recent CARF decision reinforces the importance of demonstrating the economic substance of services charged by overseas group companies.

Brazil's Administrative Council of Tax Appeals (CARF) recently examined the deductibility of technology-related expenses charged by foreign companies within the same multinational group. In a case involving Mercado Pago, the administrative tax court ruled in favor of the taxpayer on significant aspects of an assessment involving Corporate Income Tax (IRPJ) and the Social Contribution on Net Profit (CSLL). The dispute concerned payments for services provided by foreign related parties, including software development, platform hosting, systems maintenance and other technology-related activities.

Brazilian subsidiaries frequently receive services from their parent companies or other group entities — management support, IT infrastructure, financial reporting, human resources and other shared corporate functions. Brazilian tax authorities may challenge the deductibility of these expenses where companies cannot adequately demonstrate that the services were actually performed, were necessary for the Brazilian entity's business, and were properly documented.

A significant ruling for companies benefiting from state-level tax incentives.

On October 7, 2026, Brazil's Federal Supreme Court (STF) issued an important ruling on the treatment of presumed ICMS credits for PIS and COFINS purposes. In Extraordinary Appeal RE 835,818 (Theme 843), the Court concluded that presumed ICMS credits should not be included in the calculation base of these federal contributions. Presumed ICMS credits are tax incentives granted by individual states to encourage investment, industrial production and other economic activities. While federal tax authorities had argued these state-level incentives could constitute taxable revenue, the Supreme Court recognized that presumed ICMS credits represent a reduction in tax costs rather than revenue generated by the company's business activities.

As Brazil approaches implementation of its new consumption tax system, businesses must prepare for significant changes in taxation, pricing strategies and profitability.

With the elections concluded, Brazil's tax reform is returning to the forefront of the economic agenda. Several important regulatory decisions are expected in the coming weeks, while the implementation of the new system is rapidly approaching.

• CBS (Contribution on Goods and Services) TCU approved a proposed reference rate of 11.3% on October 28, 2026; the Senate is expected to establish the final rate by December 15
• Selective Tax (Imposto Seletivo) Further regulations, including applicable rates for products and activities considered harmful to health or the environment, remain pending
• Split Payment Mechanism Operational rules and the implementation timetable are still being finalized, with potential impacts on companies' cash flow management

Despite these uncertainties, one fundamental change is already scheduled: from January 1, 2027, the CBS will replace the existing PIS and COFINS contributions. Under the new VAT-based system, the effective tax burden will depend on several factors, including the availability of input tax credits, the nature of purchases, the profile of suppliers and customers, and the characteristics of each business activity. For businesses operating under the Lucro Presumido regime, particularly service providers, the transition may have significant consequences, depending on their ability to recover tax credits and pass additional costs on to customers.

A new constitutional amendment establishes two paid weekly rest days and gradually reduces the standard workweek from 44 to 40 hours, requiring companies to review their workforce arrangements.

On October 16, 2026, Brazil enacted Constitutional Amendment No. 141/2026, replacing the traditional six-day workweek with one day of rest (6×1) with a five-day workweek and two paid rest days (5×2), while gradually reducing the maximum weekly working hours without any reduction in salaries.

• December 2026 The standard workweek is reduced from 44 to 42 hours, with employees entitled to two paid rest days per week
• December 2027 The maximum weekly working hours are further reduced to 40 hours

During the initial transition, employers may distribute the 42 weekly hours across five working days — an average daily schedule of 8 hours and 24 minutes, subject to applicable working-time compensation rules. Certain highly qualified employees holding a university degree and earning at least 2.5 times the Brazilian social security contribution ceiling may negotiate different working-hour arrangements, though the two-weekly-rest-day requirement still applies. The two rest days do not necessarily have to fall on Saturdays and Sundays, although Sunday remains the preferred day of rest, and collective bargaining agreements may establish alternative schedules provided statutory rest and compensation rules are respected.