Tax Reform: Regulatory bill approved

On December 17, 2024, the House of Representatives approved Supplementary Bill No. 68/2024 – originally submitted by the Executive Branch, to regulate a few topics under the Tax Reform.

Following the legislative procedure, on December 12, 2024, the Plenary of the Brazilian Federal Senate had already approved the text, including amendments, after analyzing the report submitted by the Constitution and Justice Commission (“CCJ”).

Among some of the key changes to the project originally submitted by the Brazilian Federal Senate and upheld by the House of Representatives, we briefly highlight the following:

• Temporary establishment of the Steering Committee: to be established by December 31, 2025, aiming to arrange the practical aspects of the transition period, in compliance with the provisions originally provided for in PLP No. 108/2024, which have now been included in PLP No. 68/2024.
• Definition of the transaction location for intangible goods and services: the transaction location will now be the purchaser’s domicile for onerous transactions, and the recipient’s, for non-onerous transactions.
• COSIP: this contribution will be excluded from the IBS and CBS calculation basis.
• Definition of the calculation basis for electricity micro and mini-generation: this calculation basis will be the difference between the electricity injected into the grid and that consumed.
• IBS and CBS single-phase regime for ethanol and electricity: Regarding electricity, we highlight that electricity transmitters will be subject to IBS and CBS – when providing services to consumers connected to the basic network.

• Rate reductions:
• • 60% reduction:
    • Galleries, cinema tickets, Brazilian national works of art, theater services, stage set-up, and copyright;
    • Diapers;
    • Peanut oil, fruits and cereals in general; and
    • Services in the agriculture and agroecology sectors, in the veterinary industry (aimed at animal production), and laboratory analysis of soils and seeds.
  • Other reduction percentages:
    • Transactions involving real estate properties will be granted a 70% rate reduction, in the case of leases, and 50% in other circumstances;
    • Bars, restaurants, hotels, and amusement parks will be granted a 40% rate reduction; and
    • Tapioca was included in the list of the Brazilian national basic basket, with a 100% rate reduction.
• Selective Tax (“IS”): weapons and ammunition will not be subject to the IS, as well as exports of mineral products.
• Presumed Credit: taxpayers entitled to tax incentives from the Manaus Free Trade Zone (“ZFM”) or Free Trade Areas, and subject to both the regular IBS and CBS regime and Simple Nacional, will be entitled to presumed IBS credit regarding the import of tangible goods for on-site resale within the ZFM. The presumed credit will be calculated by applying a percentage corresponding to 50% of the IBS rate applicable to imports.
• Split payment: split payments will be mandatory for the main retail payment instruments. The manual version of the system will only be allowed if the payment method does not allow automatic tax divisions.
• Cashback: the regulations governing cashback will be valid as of January 2027, for the CBS, and as of 2029, for the IBS.

Some of the changes the Brazilian Senate proposed but were not approved by the House of Representatives include:

• Tax substitution: option of implementing the regime for drinks and tobacco-derived products.
• Selective Tax: sugary drinks will be subject to the IS once again.
• 60% reduction in IBS and CBS rates: inclusion of mineral water, sanitation services, conservation and recovery of native vegetation, as well as products such as popular biscuits.
• Veterinary services and animal health insurance plans (domestic animals): these items will be granted a 30% rate reduction instead of the 60% reduction previously approved by the Brazilian Senate.
• Garage buildings and car parks: these items will be subject to the IBS and CBS, as usual, with no special regime for real estate rentals.

Considering the exclusion of some of the new exceptions to the regular IBS and CBS regime, there may be a reduction in the projected reference rate, to be defined by a resolution of the Brazilian Federal Senate.

The bill will move forward to presidential sanction or veto.

Demarest’s Tax team is available to provide any further clarifications that may be necessary.