Implementation of VAT 2026-33 include full scale split payments measure to tackle fraud
Brazil’s implementation of VAT starting 1st January 2026 introduces an innovative “intelligent split payment” system designed to reduce VAT fraud and improve compliance. Under this system, payment service providers will not only split the payment but also verify, through the tax administration system, whether the supplier has VAT credits available to offset against the VAT due on a transaction. If the supplier has sufficient VAT credits, the payment service provider will transfer the full amount to the supplier, as the VAT obligation will be covered by the credits. This approach aims to mitigate cash flow issues and minimise the need for VAT refund claims.
This system marks another pioneering step for Brazil, which, along with Chile, led the way in electronic invoicing during the 1990s.
Brazil’s Ambitious VAT Split Payment Plan
2026-2033 VAT Implementation and Anti-Fraud Measures
As part of its VAT reform roadmap for 2026-2033, Brazil will implement an anti-fraud split payment mechanism on most transactions.
Unexpected Features of the New Legislation
Despite the broad framework of the new indirect tax system being incorporated into Brazil’s Constitution, the approved supplementary law contained some notable surprises.
- Intelligent Split Payment as a Default Rule – During the transition period, split payment will apply to nearly all payment operations (except cash transactions). A key feature of this system is a consultation mechanism where financial operators must access and verify tax authority databases to determine whether the tax reported on an invoice has been paid. This advanced structure will necessitate significant technological investment by banks and other financial institutions.
- Credit-Deduction Condition – Under the new system, buyers can only claim VAT credits once the supplier has effectively paid the corresponding tax. This represents a major shift from the current regime, where VAT credits can be deducted as soon as the buyer receives the invoice. This change will introduce new accounting complexities, necessitate enhanced controls, and create cash flow challenges for businesses.
