Split Payment to Be Adopted Through 2028, Changing Brazilian Companies’ Cash Flow Dynamics

The implementation of split payment, one of the key mechanisms of Brazil’s tax reform for the collection of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS), is entering a new phase. Integration tests between payment service providers and the public platform are set to begin in October, while adoption of the system is expected to occur gradually and on an optional basis in business-to-business (B2B) transactions starting in 2027. The Brazilian Federal Revenue Service (Receita Federal) is working toward making the mechanism mandatory for B2B transactions in 2028.

For companies, however, the longer timeline does not mean preparations can be postponed. The new model changes the way funds circulate by providing for the segregation of the amount corresponding to taxes at the time the transaction is financially settled.

In practice, instead of the supplier receiving the full payment and subsequently paying IBS and CBS, the portion corresponding to the taxes may be directed straight to the tax authorities. For lawyer, risk management and negotiation specialist Sandro Wainstein, the change also needs to be analyzed from companies’ financial and operational perspectives.

“The impact of split payment should not be analyzed solely from a tax perspective. The central issue for companies is to understand how this new dynamic will affect cash flow, contracts, commercial terms and financial decisions. The transition period should be used precisely to identify these vulnerabilities and prepare operations,” he says.

The projected mandatory adoption in 2028 represents an extension of the system’s adaptation period. This does not mean, however, that split payment will remain suspended until then. The expectation is that the platform will be available in 2027 and that its use will expand as financial institutions, payment providers, companies and tax authorities are integrated into the new structure.

The model depends on an unprecedented connection between electronic tax documents, corporate systems, institutions responsible for payments, the Federal Revenue Service and the IBS Management Committee (Comitê Gestor do IBS). The complexity of this integration is among the factors behind the gradual implementation.

For Wainstein, this period also gives companies an opportunity to test how the new model could affect their commercial relationships before mandatory adoption.

“A company may be financially healthy and still face difficulties if it is not prepared for a change in the availability of cash resources. The amount of tax that previously moved through the transaction will take a different path. This needs to be incorporated into financial projections and management decisions,” he explains.

Among the areas requiring attention are contracts structured around a specific financial cycle, payment terms negotiated with suppliers and customers, working capital requirements and receivables-advance transactions.

“A contract structured around a specific financial cycle may need to be reviewed when the way funds circulate changes. Tax reform is not only about calculating taxes. It also affects how companies negotiate, finance their operations and manage liquidity,” Wainstein says.

The design of split payment provides for different levels of automation. In more advanced models, the system may identify the amount of IBS and CBS actually due at the time the transaction is settled and automatically segregate the corresponding amount. The structure will also need to account for situations in which the tax liability has already been paid or offset, preventing duplicate withholding.

In addition to its effects on cash flow, the mechanism is considered an important component of the new tax credit system. Linking tax collection to the recognition of IBS and CBS tax credits is intended to reduce fraud, delinquency and the creation of tax credits without the corresponding payment of the tax.

Implementation, however, requires coordination among the federal government, states, municipalities, financial institutions, companies and the systems responsible for processing transactions. For Wainstein, this reinforces the importance of monitoring not only the tax reform timeline but also the operational rules and procedures established during the testing period.

“The postponement of mandatory adoption can be positive if this time is used to test the structure and correct problems before the system reaches a much larger number of transactions. For companies, the important thing is not to interpret 2028 as authorization to leave adaptation until later,” he says.

The new system is seen as an opportunity to simplify Brazil’s tax system and could reshape the country’s appeal to foreign investors. In the short term, however, operational issues still need to be detailed during implementation, including the integration of different payment methods and procedures applicable to situations such as cancellations, refunds and transaction adjustments.

The split payment system was designed to reduce tax evasion and delinquency, accelerate tax revenue collection and reduce tax disputes, but it also raises corporate cash flow concerns. Low-margin businesses, particularly in the retail sector, will face an adaptation period that could put pressure on cash flow. Another challenge, especially for small businesses, will be training professionals in finance, accounting and legal departments, who will play a central role in ensuring tax compliance and avoiding the financial impacts of the new system.

For Sandro Wainstein, the current moment is one of diagnosis and anticipation.

“Companies that begin analyzing contracts, financial processes, systems and operating models now will reach mandatory adoption with much more information about their own risks. The biggest problem would be discovering the impacts only once the new financial flow is already in effect,” he concludes.