Brazil’s Complementary Law 214/2025 introduces two new taxes—the Tax on Goods and Services (IBS) and the Social Contribution on Goods and Services (CBS)—which will directly affect the taxation of personal care, perfumery, and cosmetics products.
The new system aims to simplify the tax burden, but costs may increase depending on the final rates and each company’s operational structure.

Key Changes in the Tax Structure

The law replaces federal taxes PIS, COFINS, and IPI with the CBS, and state/municipal taxes ICMS and ISS with the IBS.
Both CBS and IBS follow the principle of full non-cumulativity, allowing companies to offset tax credits along the production chain. This approach eliminates cascading taxation and helps reduce final product costs.

A major shift for the sector is the elimination of the single-phase PIS/COFINS regime and ICMS substitution (ICMS ST), which previously concentrated taxation at the industry or importer level.
Under the new model, CBS and IBS will apply at all stages of the supply chain.

Strategic Implications for Businesses

With taxation no longer concentrated in industrial entities, companies may find it more advantageous to consolidate import, manufacturing, and distribution activities within a single entity.
This can simplify logistics and reduce the number of taxable events, since fewer establishments mean fewer CBS and IBS triggers.

Reduced Rates for Basic Hygiene Products

The law provides a 60% reduction in CBS and IBS rates for hygiene and cleaning products primarily consumed by low-income households.
Qualifying items include bar and toilet soaps, toothpaste, toothbrushes, toilet paper, bleach, diapers, and similar products (as defined in Annex VIII).
Cosmetics, however, are not eligible and will remain subject to regular CBS and IBS rates.

End of Tax Incentives

The reform also establishes the gradual elimination of tax benefits, with few exceptions.
For the cosmetics industry, ICMS incentives will be phased out during the transition period as the IBS is implemented and its rate gradually increases.
This change will require companies to review their operational locations and logistics strategies, prioritizing efficiency over tax advantages.

From 2029 to 2032, state tax incentives will lose relevance, making structures based solely on tax benefits less attractive.

Handling of Existing Tax Credits

• PIS and COFINS credits: Balances recorded before their elimination in 2027 remain valid for five years and may be offset against CBS liabilities or, if in excess, refunded or used against other federal taxes.

• IPI credits: The law does not allow IPI credits to offset CBS or IBS debts, making it advisable to fully utilize these credits before CBS takes effect.

• ICMS credits: Balances not used by December 2032, once approved by the states, may be applied to offset IBS liabilities.

Transition Timeline

• CBS begins January 1, 2027

• IBS begins January 1, 2029
  The full transition will continue until 2033, during which old and new taxes will coexist and rates will gradually adjust.

IPI and the Manaus Free Trade Zone

The IPI will not be entirely eliminated.
Most products will have their IPI rate reduced to zero as of January 2027, but certain items produced in the Manaus Free Trade Zone (ZFM) will maintain their IPI rates if they receive incentives.
Products such as perfumery and cosmetic preparations (NCM 3303 to 3307) may qualify for presumed IBS and CBS credits when produced in the ZFM.

Selective Tax (IS)

At present, there is no forecast for a Selective Tax (IS) on personal care, perfumery, and cosmetics products, but companies should monitor potential updates.

Conclusion
The 2025 tax reform presents both opportunities and challenges for the personal care, perfumery, and cosmetics sector.
While it promises a simpler and more transparent system, companies must carefully plan for higher operational efficiency, reevaluate supply chains, and proactively manage tax credits to remain competitive in this evolving landscape.