Hey, I’m Douglas, Editor-in-Chief of the Brazilian Tax Reform Portal 🇧🇷.

The transition to split payment has already begun and, according to specialists from EY and KPMG Brazil, it requires immediate preparation from companies and is not merely a technological challenge, but primarily an operational, financial, and organizational one (read more)

The model provides for the automatic segregation of taxes at the time of payment, separating the transaction value from the taxes due.

According to Giovanni Schiavone, EY partner, structural decisions need to begin now, even though the model will be implemented gradually.

Among the main impacts highlighted by EY and KPMG specialists:

“When we talk about technology, in my view we are facing an almost unprecedented change, where Brazil moves away from this declaratory model and shifts to a real-time transactional model,” Giovanni said.

Patrick Seixas, also an EY partner, stated that the model is likely to profoundly alter companies’ financial dynamics, especially due to the automatic withholding of taxes.

Maria Isabel Ferreira, Head of Indirect Taxes at KPMG Brazil, stated that adherence to split payment first depends on opting into RAD (Collection by the Purchaser) and reorganizing the supply chain.

Key points highlighted by the executive include:

“At the end of the day, if Brazil’s large companies do not opt into RAD, they will pay the price. There is no other way,” she said.

According to her, the initial impact on companies’ cash flow is expected to be substantial, since there will be no immediate tax credit, as it will be linked to payment generation by the supplier, scheduled for February.

Complementary Law No. 227/2026 establishes administrative penalties for financial institutions and payment operators that fail to comply with split payment rules. The measures include:

According to the specialists, the combination of automation, oversight, and real-time withholding leaves little room for improvisation and requires companies to prepare in advance during the tax reform transition.

The IMF (International Monetary Fund) has suggested that Argentina implement a national and provincial Dual VAT system similar to the model adopted under Brazil’s consumption tax reform. The recommendation is part of ongoing discussions on restructuring Argentina’s tax system, which the Fund considers excessively complex and fragmented.

According to the IMF’s technical team, the current system includes more than 155 taxes and relies heavily on indirect taxation.

Among the organization’s main recommendations are:

The administration of President Javier Milei has committed to advancing a tax reform before the end of the year. Discussions on pension reform, however, have been postponed until after the 2027 presidential elections.

In April 2025, Milei promised a structural fiscal reform aimed at reshaping Argentina’s tax system. The proposal sought to reduce the number of national taxes by approximately 90% and create a more investment-friendly environment.

Today, although the country has more than 155 taxes, only 10 accounted for 92% of total tax revenue in 2024.

Argentina is the second-largest economy in Mercosur and maintains strong trade integration with Brazil. As a result, structural changes in Argentina’s tax policy are likely to be closely monitored by businesses and governments across the region.

Beyond bilateral effects, significant economic changes in Argentina may also influence the dynamics of the regional bloc, particularly in matters related to trade, investment, and competitiveness.

The Argentine government informed the IMF that it intends to finalize a US$4 billion loan with international banks by the end of June to strengthen public debt payments through the 2027 elections.

According to the government, the operation is part of the Ministry of Economy’s strategy to expand financing sources, manage debt maturities, and facilitate the country’s return to international financial markets.

Among the world's leading VAT (Value-Added Tax) references is the Spanish model, introduced in 1986 as a requirement for Spain’s accession to the European Union. Four decades later, the system remains one of the main sources of inspiration for countries seeking to modernize consumption taxation — including Brazil.

Francisco Javier Sánchez Gallardo, Financial Counselor at the Spanish Embassy in Brazil and a tax auditor, highlights that the adoption of VAT was a strategic decision to enable European integration.

Before the change, Spain operated under a cumulative taxation model similar to Brazil’s former system, with limited opportunities for input tax credits and high costs for investment.

According to Gallardo, the European model is built on several fundamental principles:

Eight years ago, Spain implemented an electronic tax information-sharing system between businesses and the tax administration, increasing oversight of transactions and reducing opportunities for fraud.

Spain’s VAT system has a standard rate of 21%, as well as reduced rates of 10% and 4% for certain sectors.

Despite the criticism, Gallardo acknowledges that reduced rates are often used as an economic policy tool for sectors considered strategic.

In the auditor’s assessment, Brazil correctly adopted the main foundations of a modern VAT, such as a broad tax base, non-cumulativity, and destination-based taxation.

According to him, Brazil’s main innovations are:

“If we are talking about tax fairness, a refund system for lower-income individuals is far more effective than a reduced rate that benefits everyone. That is indisputable.”

Gallardo believes that the implementation of Brazil’s tax reform will be a continuous process of improvement.

National Treasury figures show that the federal tax burden on income, profits, and capital gains reached a record high in 2025, accounting for 9.16% of GDP.

For context, the tax burden represents the share of all wealth generated in the country that is collected by the government through taxes, fees, and contributions.

The increase was largely driven by a historic rise in IRRF (Withholding Income Tax), the reasons for which were explained in the previous edition of this newsletter, published on May 25.

However, specialists consulted by the Portal sought to answer a key question: how will the tax burden on income, profits, and capital gains behave now that Brazil has exempted individuals earning up to R$5,000 per month from income tax and introduced dividend taxation, as well as the unprecedented Minimum Tax?

Genildo Rosales, CEO of Quality Tax, expects the indicator to rise in 2026, even though the government has promised that the income tax reform will be fiscally neutral. He points to several economic measures backed by President Lula for 2026.

According to him, the across-the-board 10% reduction in tax incentives should contribute to an increase in the indicator.

In this regard, he cites the 10% increase in taxation on the portion of gross revenue exceeding R$1.25 million per quarter under the Presumed Profit regime.

All of these measures were introduced through Complementary Law 224 of 2025.

“We recently saw an increase resulting from regulatory changes, both through the higher presumed bases for Income Tax and Social Contribution, and through the creation of dividend taxation, which had previously been exempt,” he explained.

João Pedro Leme, from Tendências Consultoria, notes that it is still too early to make a definitive forecast. However, he points out that revenue from dividend taxation has not been performing as strongly as expected in the first months of 2026.

“The effect here is still not very clear, especially because, following the announcement of the income tax reform last year, there was a very significant acceleration in dividend distributions. Therefore, at least for now, we are not seeing substantial revenue collection from this measure,” says the Tendências consultant.

For context, the latest figures from Brazil’s Federal Revenue Service show that the government collected R$885 million from dividend taxation through April 2026. This represents only 2.5% of the total revenue expected from all the compensatory measures associated with the new income tax framework, which the economic team estimates at approximately R$34 billion.

Selene Nunes, consulting partner at the Institute of Public Finance and former Secretary of Economy of Goiás, also believes that Corporate Income Tax (IRPJ) is likely to emerge stronger as a result of the income tax reform. In her view, the reform’s impact on the tax burden will be primarily distributive.

“There is a distributive effect. The reform seeks to reduce the tax burden on those earning less than R$5,000 per month. This results in a loss of income tax revenue. On the other hand, it aims to tax companies more heavily. Therefore, for Corporate Income Tax, the movement is in the opposite direction,” she explains.

🇧🇷🔍 Brazil is changing. Are you watching closely?

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