Brazil’s Split Payment Promises Tax Efficiency but Raises Corporate Cash Flow Concerns

Brazil has one of the most complex tax systems in the world. Since 1988, an average of 37 tax rules have been issued every day, making compliance with and understanding of tax regulations a significant challenge. Against this backdrop, Brazil’s tax reform introduced the Split Payment system with the promise of bringing greater efficiency and simplification to the tax system.

Constitutional Amendment 132/2023 was one of the first steps in Brazil’s tax reform. It amended the Federal Constitution to create the Tax on Goods and Services (IBS), under Article 156-A, and authorized the creation of the Contribution on Goods and Services (CBS) and the Selective Tax, publicly referred to as the “sin tax.” It also established the principles of the new system, including simplicity, transparency, tax fairness, cooperation and environmental protection.

The second step in the tax reform came through Complementary Law 214/2025, which established the three taxes and set out their legal framework. The law defines what is subject to taxation, who is responsible for paying the taxes, how tax credits are generated, which sectors receive special treatment and how the taxes will be collected.

It also contains one of the tax reform’s most ambitious technological innovations: the Split Payment system, regulated under Articles 31 to 35 of the law.

How Will Split Payment Work?

Currently, businesses operate under a relatively simple tax and payment structure. When a transaction takes place, the seller receives the full amount of the sale and subsequently calculates and pays the taxes due.

Under the new model, this process will be fundamentally different. The portion corresponding to the new consumption taxes, the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS), will be collected before the remaining payment reaches the company that sold the product or provided the service.

For example, assuming a 27% tax burden on a transaction worth R$100, R$27 would be automatically separated at the time of payment and transferred to the tax authorities through payment and settlement institutions. The remaining R$73 would be transferred to the seller or service provider.

This type of payment mechanism is already common in the private sector, particularly in e-commerce and marketplace operations. It is designed to automatically divide a single customer payment among multiple recipients, such as third-party sellers, marketplace operators, logistics providers and payment service providers, at the time the transaction is processed.

Split Payment is also a mechanism that has already been tested internationally, but Brazil intends to implement it on a much larger scale. Other countries have adopted similar mechanisms, but generally limited their use to specific sectors, types of transactions or groups of taxpayers.

The initial expectation was that the new system would become fully operational in January 2027. That expectation has not been met. The government now says the system will be ready by that date, but its mandatory use will only begin once all payment methods and the institutions responsible for processing them are integrated into the platform. This is expected to occur in 2028, while voluntary adoption for transactions between suppliers is expected to become possible as early as 2027.

What Are the Impacts of Split Payment?

The new tax mechanism is expected to generate several positive effects for Brazil’s tax system, including reducing tax evasion and delinquency, ensuring faster collection of tax revenues, reducing tax disputes and potentially decreasing the number of ancillary tax obligations imposed on companies.

However, businesses have expressed concerns about the new system. One of the main issues is its potential impact on corporate cash flow, as companies could have less liquidity available for working capital.

There are also concerns about the impact on installment sales. Because taxes may be collected before companies receive the full economic benefit of a sale, the mechanism could put additional pressure on working capital and margins, particularly in the short term.

Another concern involves refunds and cancellations. In transactions involving chargebacks, product returns or price adjustments, companies will need fast and efficient mechanisms for recovering amounts that were previously transferred to the government. Without timely reimbursement, businesses could face an accumulation of tax credits and additional pressure on their cash positions.

How Will Split Payment Affect Brazilian Businesses?

The new system is being introduced in Brazil at a challenging time for businesses. With interest rates approaching 14%, major retail chains are already facing significant pressure to maintain their operations.

While the new tax mechanism promises greater efficiency and simplification for one of the world’s most complex tax systems, it could also put additional pressure on retailers’ margins by tying up funds that would otherwise be available as working capital and operating cash flow.

Among publicly traded Brazilian retailers, Casas Bahia Group (BHIA3), Americanas (AMER3) and Grupo CVLB (LLBI3), which includes Casa&Video and Le Biscuit, are examples of companies facing restructuring processes or, in some cases, judicial recovery proceedings.

The situation is not significantly different among privately held companies. Grupo Gennius, which owns the Habib’s and Ragazzo restaurant chains, filed for judicial recovery (brazilian version of Chapter 11) in August 2026. Rio de Janeiro-based women’s fashion retailer Zinzane and Grupo South & Co, which focuses on youth apparel and has a strong presence in shopping malls, are also examples of companies that have turned to the courts to reorganize their debts.

Voluntary adoption of Split Payment is expected to begin next year, with mandatory adoption currently scheduled for 2028.

Preparing for Split Payment will require companies to address their cash-flow management, strengthen working capital and modernize their payment and settlement systems. Another key factor will be training professionals in finance, accounting and legal departments, who will play a central role in ensuring tax compliance.

Anticipating these changes will be essential for companies seeking a smoother transition to Brazil’s new tax system.