Tax Reform

Starting in 2026, the rental of real estate will be governed by a new taxation model outlined in Supplementary Law No. 214/2025. The tax reform significantly expands the taxes levied on income derived from the rental of real property, affecting both individuals and legal entities. Currently, legal entities pay PIS and COFINS on rental income at a combined rate of either 3.65% or 9.25%. Under the new reform, they will be subject to IBS and CBS at an estimated rate of 26.5%. Individuals who currently pay Income Tax on rental income through the monthly carnê-leão system may also fall within the scope of the new IBS and CBS, depending on the number of properties rented and their annual income. Below are the main aspects of the tax reform applicable to the rental of real property. For individuals, IBS and CBS will apply when: For legal entities: The tax base for IBS and CBS will consist of the total rental income received, minus: Outcome: Taxpayers who currently pay only Income Tax on rental income, such as individuals, will see an effective increase in their overall tax burden during each phase of the transition. Item   Before the Reform  (IRPF) After the Reform (IRPF + IBS/CBS) Annual revenue BRL 240,000.01  BRL 240,000.01 Monthly revenue BRL 20,000,00 BRL 20,000.00 Standard deduction BRL 564.80 BRL 564.80 IRPF base BRL 19,435.20 BRL 19,435.20 IRPF BRL 4,448.00 BRL 4,448.00 Social deduction (BRL 600 per property) — BRL 2,400.00 Adjusted IBS + CBS tax base — BRL 17,600.00 Estimated IBS + CBS rate — 26,5% Redutor da alíquota (locação) — 70% IBS + CBS — BRL 1,399.20 Total Taxes BRL 4,448.00 BRL 5,847.20 Effective tax burden 22,24% 29,24% Legal Entity (Presumed Profit Regime) – 4 Properties Description   Before the Reform (Leasing) After the Reform (Non-Residential Leasing) After the Reform (Residential Leasing) Gross monthly revenue BRL 20,000.00 BRL 20,000.00 BRL 20,000.00 Annual revenue BRL 240,001.00 BRL 240,001.00 BRL 240,001.00 Presumed tax base (32%) BRL 6,400.00 BRL 6,400.00 BRL 6,400.00 Corporate Income Tax (15%) BRL 960.00 BRL 960.00 BRL 960.00 CSLL (9%) BRL 576.00 BRL 576.00 BRL 576.00 PIS (0,65%) BRL 130.00 — — Cofins (3%) BRL 600.00 — — Social deduction (BRL 600 per property – residential) — BRL 2,400.00 Adjusted tax base — BRL 20,000.00 BRL 17,600.00 Estimated IBS + CBS rate — 26,5% 26,5% Rate reduction (70%) — Yes Yes Reduced rate (IBS + CBS) — 7,95% 7,95% IBS + CBS due — BRL 1.590,00 BRL 1.399,20 Total taxes (after the reform) BRL 2.266,00 BRL 3.126,00 BRL 2.935,20 Effective tax burden 11,33% 15,63% 14,68% Advantage under the reform There will be a right to claim IBS/CBS input tax credits on the acquisition of real estate Simulation Taxation After the Reform – Legal Entity (Airbnb Leasing / Hospitality Rules) Description   Amount / Information Gross monthly revenue BRL 20,000.00 IRPJ/CSLL (7,68%) BRL 1,536.00 Base rate (CBS + IBS) 26,5% Reduction (Art. 281, Complementary Law No. 214/2025) 40% Reduced rate (CBS + IBS) 15,9% CBS + IBS due BRL 3,180.00 Total taxes (CBS + IBS + Corporate Income Tax / Social Contribution) BRL 4,716.00 Effective tax burden 23,58% For fixed-term lease agreements, the lessor may choose to collect IBS and CBS at a 3.65% rate until the end of the contract or until December 31, 2028, whichever comes first, in the case of residential property leasing. This benefit is conditional upon the contract:a) being entered into by the date of the publication of Supplementary Law No. 214/2025 (January 16, 2025), with proof of execution through notarized or electronic signatures; andb) being registered with the Real Estate Registry Office or the Registry of Deeds and Documents by December 31, 2025. For residential leasing, evidence of the contract may also be provided through the payment of rent on or before the last day of the month following the publication of Supplementary Law No. 214/2025 (January 16, 2025). By opting for this special regime, the taxpayer will not be entitled to: The tax team at LBM Advogados is available to provide strategic guidance on these matters.

Brazil’s Tax Reform marks a historic milestone aimed at restructuring the country’s consumption taxation system to simplify and modernize tax collection. Following the initial regulation through Complementary Law No. 214/2025, which established the Goods and Services Tax (IBS), the Contribution on Goods and Services (CBS), and the Selective Tax (IS), there are still regulatory gaps, technical challenges, and practical bottlenecks that need to be addressed to ensure legal certainty, efficiency, and transparency. The progress of the reform depends on the approval of Complementary Bill No. 108/2024 (PLP 108/2024), currently under review in the Federal Senate, which will regulate key aspects of the new system. Below are 12 crucial points of the tax reform that require further regulation: Practical challenges ahead In addition to these regulatory gaps, companies will need to adapt their systems and contracts to avoid tax assessments, economic distortions, and litigation. Even though the reform will be implemented gradually, the deadlines are tight, given the technical and legal complexity involved in the transition. Planning will be crucial to update management systems (ERPs), internal processes, and to reconcile the calculation of current taxes (ICMS, ISS, PIS, COFINS) with the new model until 2033. Long-term contracts will also require special attention, particularly those involving tax benefits. For example, contracts in the real estate sector must be registered at a notary’s office by December 2025 to benefit from the current gross revenue taxation regime.LBM Advogados is closely monitoring each stage of the tax reform regulation and is prepared to assist domestic and international companies in analyzing risks, opportunities, and the practical impacts of the new system.

The Tax Reform approved by Constitutional Amendment No. 132/2023 (EC 132/23) has not only affected consumption taxation, but it has also introduced significant changes to the Inheritance and Donation Tax (ITCMD), which directly impact estate and succession planning. The regulations regarding these changes to the ITCMD are outlined in Complementary Bill No. 108/2024 (PLP 108/2024, Book II, Articles 163 et seq.), which has been approved by the Chamber of Deputies and is currently being processed by the Federal Senate. The text of PLP 108/2024 aims to standardize and harmonize ITCMD regulations, as they vary significantly across different States and the Federal District, which have the authority to enact and enforce the tax. While the impact of the reform will depend on individual circumstances, we highlight below seven key changes introduced by the bill: 1. Taxable Event (Article 164) The ITCMD is levied on the donation of assets, rights, and values between living persons, and on transfers upon death (inheritance or bequest). PLP 108/2024 equates the transfer between related persons declared as onerous to a donation if there is no proof of financial capacity to acquire the asset or right; the same occurs in the forgiveness of debt by liberality and without verifiable business justification. Related parties include: (i) spouses, partners, or relatives up to the third degree, and (ii) legal entities in which such individuals hold executive or ownership positions. 2. Tax Immunity for Non-Profit Institutions (Articles 165–168) PLP 108/2024 regulates ITCMD immunity for donations received or made by non-profit entities with public or social purposes, as provided for in EC 132/2023. Each State and the Federal District will define the process for recognition of tax immunity. However, in any case, institutions must prove that the donations are linked to their institutional purposes and comply with the general requirements for enjoying tax immunities set out in the National Tax Code (Article 14). Among the requirements are the non-distribution of any portion of assets or income and the complete application of resources to the maintenance of institutional objectives. 3. Timing of Taxable Event: Impacts on Trusts (Articles 169–172) The definition of trust for ITCMD purposes is the same as for income tax. The applicable rules extend to both foreign contracts and domestic trust agreements that share similar characteristics. The assets and rights within a trust abroad remain the property of the settlor until they are distributed to the beneficiary or the settlor dies, whichever occurs first. ITCMD will be triggered at either event. If the settlor irrevocably waives rights to the assets, tax may apply earlier. 4. Tax Base: Market Value of the Asset (Articles 173–177) The ITCMD calculation basis will now be the market value of the asset transferred, which can significantly increase the tax due when compared to the calculation based on the reference venal value or the IPTU. For transfer of publicly traded shares, the calculation basis will correspond to the closing price on the day before valuation. For others private company interests, including those that have not been actively traded for more than 90 days, PLP 168/2024 stipulates that the ITCMD will be calculated using a suitable methodology appropriate to the quotas and shares, and will correspond at least to the net worth adjusted by the valuation of assets and liabilities at market value, plus the market value of goodwill. This calculation methodology – which no longer considers the equity value, but the market value of the assets – meets a request from state tax authorities. Its provision in the law could substantially impact the amount of tax due for companies with undervalued assets in their accounting, such as real estate holdings. The reference to the use of a ‘technically suitable and adequate methodology’ also creates some uncertainty, as it broadens the valuation tools to lead to the so-called ‘fair value’ of shares and quotas, which can be achieved using different techniques, such as discounted cash flow or market multiples. While these valuation methods are common in corporate transactions, they may take into account numerous variables, including risk factors, costs and expenses, intangible assets, and patents for new technologies, which tax authorities have not historically utilized. On a positive note, this legislation allows for the deduction of the deceased’s debts from the ITCMD base, provided that their origin, authenticity, and pre-existence are adequately proven. 5. Progressive Tax Rates: Higher Taxation on Large Estates (Art. 178) PLP 108/2024 introduces progressive ITCMD rates based on the value of the asset or right transferred. While progressive taxation is already adopted by some States, even based on criteria other than the value of the asset or right, the change may represent a significant shift for States that currently apply a flat rate, such as São Paulo, Minas Gerais, and Paraná. The so-called ‘large estates’, as defined in state or district legislation, will be taxed at the maximum rate, currently set at 8%. Although there is an old legislative proposal to raise the maximum ITCMD rate to 16% (Senate Resolution Bill No. 57/2019), it is still under consideration. 6. Liable Parties. Joint and Several Liability (Articles 179–181) In addition to identifying the heirs and donees as ITCMD taxpayers in the case of causa mortis transfers and donations, respectively, PLP 108/2024 specifies the third parties who may be held jointly and severally liable for paying the tax. These parties include the donor, the estate, notaries, financial institutions, and any other individual or entity responsible for the administration, custody, and registration of movable or immovable property, along with the associated rights of the transfer. Additionally, the transferee and any individual or legal entity that contributes to the concealment or disguise of the causa mortis transfer or donation are also liable. 7. Tax Authority Jurisdiction for Domestic and International Transfers (Arts. 182–184) PLP 108/2024 thus regulates the competence to institute and collect ITCMD: a.1. in Brazil → State/DF where the property, or most of it, is located; a.2. abroad: b.1. For inheritance: b.2. For donation: b.3. All parties domiciled abroad → State/DF where the

The tax reform approved by Constitutional Amendment 32/2023 has introduced significant changes to the tax treatment of imports of small-value goods, particularly those purchased by individuals through international digital platforms such as Shein, Shopee, and AliExpress. So, what can we expect over the next few years? End of Import Tax Exemption for Purchases Up to $50 Until August 2024, international purchases valued up to $50 made by individuals were exempt from import tax. However, this exemption has been revoked under Law No. 14.902/2024, and these purchases are now taxed under the Simplified Taxation Regime (RTS), with an import tax set at 20%. Additionally, these purchases are subject to ICMS, with rates varying between 17% and 20% depending on the destination State. How Does Tax Reform Impact “Blouses”? Starting in 2026, the Contribution on Goods and Services (CBS) will be introduced, replacing PIS and COFINS. The initial CBS rate will be 0.9% and will gradually increase until it is fully implemented in 2027. Additionally, the Tax on Goods and Services (IBS), which will replace the ICMS and ISS, will be rolled out in stages beginning in 2029. According to the reform regulations outlined in Supplementary Law 214/2025, the IBS and CBS rates for imports will equal those applied to similar goods sold in the domestic market, subject to specific tax regimes (Article 71). However, only international shipments that meet the following three criteria will be exempt from IBS and CBS: i) are exempt from import tax, ii) are sent directly between individuals, and iii) are not facilitated by digital platforms (Article 94). This means that online purchases made by individuals, even those under US$ 50, will no longer be exempt and will still be subject to the CBS and, in the future, IBS. Expectations for the Coming Years Based on the transition model for the new tax system, ICMS will continue to be applied to import operations until 2032. This means that for several more years, ICMS will coexist with the new taxes, which could signal the end of the era of exempt “blouses” and more economical consumption alternatives. However, for both state and federal governments, increasing taxes on small international purchases could help protect local businesses and boost revenue.