BRAZIL: An Introduction to Tax Non-contentious: Highly Regarded

Brazil’s Tax Landscape in 2025: Key Reforms and What Lies Ahead in 2026

In 2025, Brazil advanced into a pivotal phase of its tax system overhaul. The year saw substantial progress on the long-awaited VAT reform, significant adjustments to income taxation, and steps towards aligning international tax rules with global frameworks such as the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two. Looking ahead to 2026, the focus is expected to shift from legislative milestones to regulatory consolidation, operational roll-out and strengthened compliance governance. This article examines the key developments of 2025 and outlines the trends likely to shape Brazil’s tax landscape in the coming year.

VAT Reform – Implementation Phase and Regulatory Consolidation

Following the enactment of Complementary Law No 214/2025, Brazil has entered the implementation phase of the new dual VAT system, which includes the IBS (goods and services tax) and the CBS (contribution on goods and services). Both will replace five federal, state and municipal taxes, aimed at simplifying Brazil’s tax system. In 2025, the government initiated the preliminary regulatory process, transitional rules and operational guidelines for taxpayers.

For 2026, taxpayers should expect an intense regulatory agenda, including:

• transitional compliance obligations;
• operational rules for credits entitlement, refund mechanisms and non-cumulative criteria;
• sector-specific definitions of taxable events, including digital economy and the electric department;
• administrative guidance from the newly created IBS/CBS Management Committee; and
• draft secondary legislation that will ultimately govern invoicing, reporting and audit.

This transition is expected to reshape pricing structures, supply chains and the overall tax burden of doing business in Brazil. The reform is expected to modernise Brazil’s indirect tax system but will require significant adaptation efforts during the transition, which will be concluded by the end of 2032.

Income Tax Reform – Law 15,270

One of the most discussed topics of 2025 was the enactment of Law 15,270 towards the end of the year (27th November), which reintroduces dividend taxation in Brazil beginning in 2026, ending nearly 30 years of tax-exempt dividend distributions. Accordingly, the Law introduces:

• a reassessment of the individual income tax brackets and exemptions for lower-income taxpayers;
• minimum taxation for high-income individuals; and
• taxation of dividend distribution for tax-resident individuals and non-resident individuals and companies, which were tax-exempt since 1995.

Therefore, as of 2026, companies and individuals will need to reassess their structures for holding, distributing and reinvesting income. Wealth planning structures will also require substantial review.

A particularly relevant debate concerns the scope of the transitional dividend exemption applicable to non-residents. Law No 15,270 provides that profits paid, credited or remitted until 31 December 2025 remain exempt from withholding income tax (WHT). However, the wording of the law is ambiguous, giving rise to competing interpretations regarding dividends declared in 2025 but paid in later years, particularly in cross-border scenarios involving non-residents.

Three interpretations have emerged in the market:

• dividends declared up to 2025 and paid by 2028 remain exempt from WHT;
• dividends declared up to 2025 can be paid without WHT indefinitely; and
• only dividends declared and paid by 31 December 2025 are exempt from WHT.

This matter is highly controversial and may be challenged in practice, especially by banks and brokers responsible for processing remittances abroad and applying WHT.

It is also worth noting that Bill No 5,473 is currently under discussion and may extend the deadline for the deliberation of exempt profit distributions to 30 April 2026, which, if approved, could offer taxpayers additional time to align their profit distribution policies with the new tax regime.

International Taxation and Pillar II

Brazil formally incorporated OECD Pillar II into domestic law in early 2025, introducing the global minimum tax (GMT) for multinational enterprise groups. The new rules impose top-up taxation whenever a jurisdiction’s effective tax rate falls below the agreed global minimum.

For 2026, multinational groups with operations in Brazil will face a dual challenge:

• complying with data-intensive reporting requirements (GloBE calculations); and
• co-ordinating their transfer pricing, tax incentives and entity-level tax positions with the new global minimum tax framework.

The new rules are expected to strongly influence investment decisions, reorganisations and supply-chain planning.

Furthermore, 2025 was the second year in which Brazil’s OECD-aligned transfer pricing system was fully applied under Law No 14,596/2023. The year saw substantial regulatory activity focused on documentation obligations and transitional guidance.

2025 was also the first year in which many Brazilian taxpayers were required to deliver the Local File and Master File under the OECD-aligned transfer pricing system, for those who did not opt for early adoption in 2023. This marked a major shift in compliance obligations, as companies had to prepare comprehensive comparability analyses, value chain descriptions and economic studies under the arm’s length standard.

Although the transfer pricing reform brought Brazil closer to OECD standards, several aspects still require supplementary regulation or even additional legislation.

In 2026, further guidance is expected, including:

• rules for Advance Pricing Agreements (APAs);
• sector-specific rules for complex intangibles and financial transactions;
• guidance on financial transactions, intra-group loans, guarantees and cash pooling;
• clarification on penalty frameworks and documentation thresholds;
• additional guidance for low-value-added intra-group services; and
• potential safe harbours.

As enforcement intensifies, multinational groups should anticipate enhanced scrutiny of cross-border transactions, comparability analyses, and the alignment of profit allocation with value creation.

In 2025, Brazil officially ratified the Multilateral Instrument (MLI), reinforcing its commitment to the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. This ratification enables Brazil to implement key treaty-related measures to prevent tax avoidance, improve dispute-resolution mechanisms, and align its international tax framework with global standards. The adoption of the MLI marks a significant step towards greater transparency and consistency in cross-border taxation. For multinational companies operating in Brazil, this means enhanced certainty in the application of tax treaties, reduced risks of double taxation, and a stronger framework for resolving international tax disputes.

Tax Environment and Administrative Trends

In 2026, Brazil’s Federal Tax Administration (Receita Federal) is expected to focus on implementing the country’s major tax reform – a dual VAT system and a selective tax on certain goods and services. The agency should prioritise simplifying compliance, modernising electronic invoicing and aligning Brazil with international standards such as the OECD’s global minimum tax. In terms of enforcement, the tax agency is likely to intensify the use of advanced data analytics and digital tools to monitor transactions, combat tax evasion and ensure accurate reporting under the new system. Brazil’s tax authorities have also intensified their audit practices, leveraging cross-agency co-operation and digital tools to target:

• digital economy taxation;
• indirect tax compliance;
• cross-border restructuring; and
• aggressive tax planning rules.

This indicates that, beyond legislative reform, enforcement will continue to be a key focus in 2026. Overall, its agenda should prioritise digitalisation, transparency and enhanced oversight during one of the most important fiscal transitions in Brazil’s history.

Expectations for 2026

Companies should prepare for a year focused on implementation, compliance and strategic readiness. Key priorities include:

• reviewing supply chains and pricing models in light of IBS/CBS;
• reassessing corporate and individual income tax strategies;
• evaluating Pillar II impacts on global structures;
• strengthening transfer pricing documentation and governance; and
• monitoring forthcoming regulations and transitional regimes.

The combination of structural reform and heightened enforcement demands a proactive and multidisciplinary approach to tax management.

Conclusion

The Brazilian tax landscape has never been more dynamic. 2025 set the foundation for profound structural changes, and the operational application of these reforms will define 2026. Companies that anticipate and adapt early will be in a significantly stronger position to mitigate risks, preserve tax efficiency and seize opportunities in a transformational environment.