Cross‑Border Tax Forecast 2026 in Brazil

Brazil is currently undergoing a comprehensive tax reform approved in 2023 through Constitutional Amendment No. 132, aimed at simplifying the tax system, reducing litigation and enhancing legal certainty for taxpayers.

The reform introduces a new consumption-based taxation model, replacing several existing federal, state and municipal taxes with a dual value-added tax structure (federal Contribution on Goods and Services or CBS and state/municipal Tax on Goods and Services or IBS). Its implementation will occur gradually, with a transition period starting in 2026 and extending over the following years, allowing for the coexistence of the current and new tax regimes until full implementation.

During the transition period, current and new taxes coexist, and a testing period has been initiated to allow for the adaptation of tax invoices. The legislation also provides for mechanisms to offset tax credits accumulated under the previous regime, aiming to prevent taxpayers from being adversely affected or losing credits to which they are already entitled. 

Throughout 2026, relevant discussions regarding the regulation of tax reform remain pending, particularly with respect to the tax invoicing system that will incorporate the IBS and CBS.

At the end of 2025, Brazil enacted significant changes to the taxation of profits and dividends paid abroad, with effects expected to materialise in 2026.

Law No. 15,270/2025 introduced:

• a 10% withholding income tax (WHT) on profits and dividends paid abroad
• a credit mechanism that allows foreign beneficiaries to claim a tax credit if the combined effective tax burden in Brazil exceeds the applicable nominal rates of corporate income tax (IRPJ) and social contribution on net profit (CSLL).

This change increases the tax cost of profit repatriation and may affect cash-flow projections for multinational groups with Brazilian operations.

Although the law establishes a credit mechanism allowing foreign beneficiaries to claim a tax credit where the aggregate effective tax burden in Brazil exceeds the applicable nominal corporate rates, the practical effectiveness of this mechanism remains uncertain. The procedures for exercising this option remain subject to regulation by the Executive Branch, expected in 2026.

• Assess the effective tax burden applicable to the company’s profits in Brazil, considering IRPJ, CSLL and the new WHT, in order to determine whether the conditions for recognising the tax credit are met
• Review dividend distribution policies and repatriation strategies in light of the new WHT and the potential availability of the tax credit mechanism

Judicial developments continue to play a central role in shaping Brazil’s tax landscape, with higher courts increasingly influencing taxpayer behaviour through binding precedents and landmark rulings on complex and high impact tax matters.

Case law from the Brazilian Supreme Federal Court (STF) and the Superior Court of Justice (STJ) will continue to guide taxpayer conduct. 

Binding precedents remain central, with courts increasingly concluding major tax cases, particularly those involving taxes expected to be phased out under Brazil’s tax reform, such as the exclusion of (i) ISS (tax on services) and (ii) presumed ICMS (tax on goods) credits of PIS/COFINS (contributions on gross revenue) taxable basis.

Courts will also address issues such as the taxation of C-level compensation and the statute of limitations for using tax credits.

Companies should closely monitor case law to ensure timely challenges and alignment with new binding precedents, especially as courts are expected to continue limiting the effects of taxpayer-favourable rulings.

Alternative dispute resolution (ADR) mechanisms are gaining prominence in Brazil as tools to address tax liabilities and promote compliance.

More taxpayers will adopt ADR mechanisms to promote compliance. Examples include tax settlements and procedural agreements.

These tools are gaining ground in Brazil and are replacing amnesties and incentive-based instalment programmes.

For companies, the strategy is to clean up legacy liabilities. Litigation can then focus on specific, high impact matters. Companies should be cautious with tax loss carryforwards in settlements, considering that their limits of usage have been under discussion in administrative and judicial courts.