Brazil’s National Congress passes Bill of Law (PLP 68/24) regulating the Tax Reform

In a nutshell

On December 17, 2024, the National Congress approved the basic text of the Complementary Bill (PLP 68/24) that regulates Constitutional Amendment 132/23 (“Tax Reform”) and institutes the Tax on Goods and Services (IBS), the Social Contribution on Goods and Services (CBS), the Selective Tax (IS) and creates the IBS Management Committee.

It is likely that the final text will be enacted by the President of the Republic by December 20, 2024.

Wording amendments to the bill, as well as the 2nd Complementary Bill of Law (PLP 108/2024) are still to be analyzed and voted by Congress. PLP 108/2024 creates the Tax Management Committee (CG-IBS); provides for the tax administrative process relating to IBS, on the distribution of the tax revenues of IBS collection to federal entities and on ITCMD (Tax on Causa Mortis Transmissions and Donations).

More details

The text of PLP 68/24 was first approved by the Chamber of Deputies on October 30, 2024. It was then approved with amendments by the Senate on December 12, 2024 and finally had its final version approved on December 17, 2024 by the Chamber of Deputies, with the exclusion of some points included by the Senate.

This final version of PLP 68/24 still requires a careful analysis of its rules and impacts, especially given the significant changes that were discussed in each house of Congress. We will soon be preparing more detailed materials about the tax reform.

The following points stood out during the course of the legislative process:

a) Points inserted by the Senate and rejected by the Chamber of Deputies in the final draft

The text approved by the Chamber of Deputies rejected the reduction of the tax rate by 60% for sanitation services, as well as:

• Re-included sugary drinks on the list of incidence of the Selective Tax – IS.
• Rejected the possibility of introducing tax substitution for IBS and CBS.
• Removed the 60% discount on the rate levied on veterinary services.
• Removed the 60% discount on mineral water and cookies.
• Returned the list of medicines that will be subject to reduced taxation.
• Resumed the 8.5% tax rate for Football Joint Stock Companies (SAF) and abolished the income tax exemption on soccer player transactions.

The aim of these changes was to potentially reduce the general tax rate by 0.7 points, to reach 27.8% instead of the estimated 28.5%, which was the estimate based on the text approved in the Senate. However, the rates have not yet been set.

b) Points inserted by the Senate and maintained by the Chamber of Deputies in the final wording

• Inclusion of the oil refining industry in the favored regime of the Manaus Free Trade Zone (ZFM);
• Inclusion of electricity transmission services in a differentiated IBS and CBS tax regime that allows the rate to be deferred.
• Single-phase regime for hydrated ethanol in the transition period, relating to the payment of PIS/Cofins.
• Guarantee that the Selective Tax – IS will not be levied on exports of mineral goods.
• Taxpayers eligible for tax incentives from the Manaus Free Trade Zone or Free Trade Areas and subject to both the regular IBS and CBS regime and the Simples Nacional regime will be entitled to a presumed credit (50% of the IBS rate applicable to imports) for IBS relating to the import of material goods for on-site resale in the Manaus Free Trade Zone.

c) Other noteworthy points

• Basic food basket: defines the products listed as exempt from IBS and CBS.
• Exempt proteins: defines that meat, poultry and fish will have a zero rate of IBS and CBS, within the national basic food basket.
• Other foods with a 60% reduction (IBS and CBS): crustaceans, dairy products, honey, flour, cereals, pasta, juices, bread, fruit, among others.
• Cashback: 100% cashback on federal taxes on electricity, water and sewage for the low-income population (CadÚnico).
• Nano-entrepreneur: entrepreneurs who earn R$40,500 per year (R$3,375 per month) can choose to remain in Simples Nacional or migrate to VAT, which has a higher rate but is not cumulative.
• Transportation/delivery apps: gross revenue for tax purposes will be 25% of rides earnings.
• Technical professionals: 30% reduction in the IBS and CBS rates on the provision of services by 18 regulated professions of a scientific, literary or artistic nature. This does not include commercial representatives.
• 60% rate reduction of tax rates: Areas such as nursery, primary and secondary education. Health services and medical devices. Accessibility devices. Personal hygiene items such as soap, toothbrushes and toilet paper. Agricultural inputs and National artistic productions, works, events.
• Bars, restaurants, hotels and parks: IBS and CBS tax rate reduced by 40% (excluding alcoholic beverages), without counting tips in the calculation base. On the other hand, those who purchase products or services from these sectors are not allowed to record IBS and CBS credits.
• Selective Tax:
  • IS is levied on goods and services relating to: (i) vehicles; (ii) ships and aircraft; (iii) smoking products; (iv) alcoholic beverages; (v) (vi) mineral goods, including coal; and (vii) betting contests and fantasy sports.
  • There will be different criteria for IS rates, to be established by ordinary law.
  • Congress maintained the single-phase incidence of IS provided for in the original PLP 68/24.
  • There will be exceptions, such as trucks and vehicles for operational use by the Armed Forces or public security agencies.
• Real estate transactions:
  • Transactions involving real estate, such as disposal, rental, leasing and the creation of rights in rem will be taxed by the IBS and CBS. These operations include transactions such as payment in kind, exchanges and other forms of transfer, broadening the scope of taxation in the real estate sector.
  • Among the main changes is a 50% reduction in the standard rate for all real estate transactions, with an even greater reduction of 70% applied specifically to rental, onerous assignment and lease transactions.
  • Individuals will be exempt from paying IBS and CBS if earn up to R$240,000 a year in rent and owns up to three rented properties. Above these limits, the landlord will be subject to CBS and IBS taxation.
  • Real estate investment funds (FIIs) and agribusiness funds (Fiagro) will also be considered IBS and CBS taxpayers under the regular regime if they do not meet the criteria for exemption from income tax on income distributed to shareholders or if they are taxed as legal entities.
  • PLP 68/24 institutes the “social reducer”, a mechanism which, according to the parliamentarians, aims to ensure greater tax progressivity, benefiting low-income families and low-income properties. The reducer will be applied, for example, with fixed values of: R$100,000 for the purchase of new properties; R$30,000 for the purchase of residential plots; and R$600 for residential rentals. These amounts will be adjusted monthly based on the IPCA (Consumer Price Index).
  • The location of the property will be decisive in defining tax jurisdiction. In cases where the property is located in more than one municipality, the municipality where most of its area is located will prevail.
• Medicines:
  • Return of the list of medicines that will be taxed less.
  • Medicines may have a 60% or 100% reduction in the IBS and CBS rates. The 60% reduction will apply to medicines registered with Anvisa or produced by compounding pharmacies, as well as to the supply of enteral and parenteral nutrition compositions, special compositions and nutritional formulas for people with inborn errors of metabolism listed in Annex VI of PLP 68/2024.
  • The 60% reduction is applicable to medicines manufactured or imported by legal entities that have signed a conduct adjustment commitment with the Federal Government and the IBS Management Committee or by legal entities that comply with the system established by the Medicines Market Regulation Chamber (CMED) to ensure that the reduction in the tax burden is reflected in prices.
  • With regard to medicines subject to the zero tax rate of IBS and CBS, PLP 68/24 approved by the National Congress brought new developments because it determines that the IBS and CBS rates levied on the supply of medicines related to (i) cancer treatments; (ii) rare diseases; (iii) STD/AIDS; (iv) neglected diseases; (v) vaccines and serums; and (vi) diabetes mellitus will be reduced to zero.
  • The reduction to zero of IBS and CBS tax rates will also benefit 1) purchases of medicines by direct public administration bodies, municipalities and public foundations and health entities immune to IBS and CBS certified for providing annual services to SUS in the minimum percentage of 60%; 2) medicines intended for the Popular Pharmacy Program of Brazil and 3) purchases of compositions for enteral and parenteral nutrition, special compositions and nutritional formulas intended for people with inborn errors of metabolism purchased by government agencies.
• Responsibility of the platforms:
  • Congress made several important changes for digital platforms, including those based abroad. Platforms will play a central role in collecting the IBS and CBS levied on transactions carried out through them. They will be responsible for paying the taxes when they replace suppliers resident abroad or act jointly and severally with domestic suppliers who do not issue electronic tax documents or are not duly registered.
  • In order to be characterized as a digital platform under PLP 68/24, legal entities will need to control essential elements of operations, such as collection, payment, definition of commercial conditions and delivery of goods or services. Companies that only provide internet access, process payments, offer advertising or carry out supplier searches and comparisons are not considered digital platforms, as long as their remuneration is not linked to the sales made.
  • Foreign suppliers who exclusively use digital platforms are exempt from tax registration, transferring responsibility for complying with the tax obligations established by the Tax Reform to the platforms.
  • Platforms will be obliged to provide detailed reports to the IBS Management Committee and the Federal Revenue Service, including information on all transactions carried out, identifying the suppliers involved, even if they are not formally registered taxpayers.
• Tax Management Committee:​
  • The Tax Management Committee (CGIBS) will be set up. The CGIBS along with tax authorities and tax prosecutors office will be able to jointly implement integrated solutions for the future administration and collection of CBS.​
• Split payment:
  • A system that will allow taxes to be collected at the time of financial settlement.
• Tax burden lock:
  • Tax data from the transition period (2026 to 2030) will form the basis of a report estimating the size of the standard rate that will be charged from 2033, when the entire system should be in place. If this rate exceeds 26.5%, the federal government will have to send a bill to Congress to adjust taxation to this level.