On January 16, 2025, Brazil enacted Complementary Law No. 214, marking one of the most significant tax reforms in the country’s history. This law replaces Brazil’s highly complex consumption tax system with a dual VAT model, fundamentally changing how both domestic and foreign businesses are taxed.
For global SaaS providers, this reform is not just a policy shift—it introduces new compliance requirements, higher tax rates, and stricter enforcement. With a combined VAT rate expected to be between 26.5% and 28%, foreign SaaS companies selling to Brazilian customers must prepare now to avoid compliance risks.
This article breaks down the key changes, challenges, and what SaaS businesses need to do to stay compliant.
The New VAT System: What’s Changing?
Brazil’s tax reform consolidates five different levies—PIS, COFINS, ICMS, ISS, and IPI—into a simplified dual VAT structure. Effective January 1, 2026, foreign and domestic businesses will now be subject to:
- CBS (8.8%) – A federal VAT replacing PIS and COFINS, applied to all consumption.
- IBS (17.7%) – A state/municipal VAT replacing ICMS and ISS, with rates varying by jurisdiction.
- IS (Selective Tax) – An excise tax applied to goods and services considered harmful to health or the environment (e.g., tobacco, alcohol, certain vehicles).
Brazil’s VAT rate is now among the highest globally, surpassing India’s 18% GST and the EU’s ~20% VAT average.
How This Affects Foreign SaaS Businesses
Under the new law, foreign SaaS providers, marketplaces, and digital service companies will face strict new tax compliance rules, including:
- Mandatory VAT Registration – Nonresident SaaS businesses must register with Receita Federal, Brazil’s tax authority, even without a local entity.
- Direct VAT Collection & Remittance – SaaS providers must charge and remit VAT at 26.5%-28% on all B2B and B2C transactions in Brazil. Previously, some digital services were taxed under ISS, but VAT will now apply uniformly.
- No Input Tax Credits for Foreign Companies – Unlike Brazilian businesses, foreign SaaS firms cannot claim VAT input credits, increasing the cost of doing business in Brazil.
- Marketplaces & Payment Processors May Be Liable – If a SaaS provider fails to collect VAT, platforms processing payments (such as Stripe or PayPal) may be held responsible, similar to India’s GST system.
- Higher Compliance Costs – Companies must update billing systems to track and apply VAT correctly, ensure compliance with different IBS rates across states, and integrate with Brazil’s real-time tax reporting system.
Key Compliance Challenges for Foreign SaaS Providers
Brazil’s VAT reform introduces a more complex compliance environment for foreign businesses:
- Multiple VAT rates – The IBS portion of the tax varies by state, making tax calculations more complicated.
- Electronic invoicing & reporting – SaaS companies must ensure their systems comply with Brazil’s mandatory electronic fiscal documents (Nota Fiscal Eletrônica).
- Split-payment enforcement – Brazil is expected to require financial institutions to withhold VAT at the transaction level, forcing SaaS firms to adapt to split-payment models.
What Foreign SaaS Businesses Need to Do Now
To avoid last-minute compliance risks, SaaS companies should begin preparing for Brazil’s VAT changes now:
- Register with Receita Federal early – Avoid delays by completing VAT registration well before the 2026 deadline.
- Upgrade billing & invoicing systems – Ensure systems can apply, collect, and track VAT separately for CBS and IBS.
- Monitor regulatory updates – The Ministry of Finance may adjust VAT reference rates, so staying updated is critical.
- Assess financial impact – With no input tax credits, SaaS firms should model how the new tax burden will affect pricing and margins.
Brazil Joins the Global Trend of Digital Taxation
Brazil’s tax reform follows a global pattern of governments taxing foreign digital services more aggressively.
- India’s GST – Requires nonresident SaaS firms to register and collect 18% GST.
- EU VAT – Applies destination-based VAT rules to SaaS and digital services.
- Brazil’s VAT – Now one of the highest globally, increasing compliance costs for foreign businesses.
Conclusion: Adapting Now is Essential
Brazil’s 2025 VAT reform is a landmark shift in Latin American taxation, aligning the country with global VAT principles while imposing higher costs and compliance burdens on foreign digital businesses.
For SaaS companies, the stakes are high. With VAT rates reaching 26.5%-28%, strict registration requirements, and no input tax credit options, businesses that fail to adapt risk penalties, market exclusion, or payment disruptions.
At TaxDo, we specialize in helping digital businesses navigate global VAT challenges. If you sell SaaS in Brazil, our solutions can ensure seamless VAT compliance, automated filings, and ongoing compliance monitoring.
Need help preparing for Brazil’s 2026 VAT changes? Contact us today for expert guidance.