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The impact of Tax Reform in the Construction Industry

With the Tax Reform, which was established by a Constitutional Amendment 32/2023, it will bring far-reaching changes to companies in brazil, and is one of the most affected sectors of the construction industry. Thus, you will be presented with those changes that will impact you directly to a thread that was worth more than us$ 350 billion by 2024, and supports millions of jobs in the country.

1. The current scenario of the tax on the real estate market:

Currently, companies in the construction industry who work with a real estate development can be given the option to submit to a Special Tax Regime (RET), which was established by Law no. 10.931/2004, and that it has a low sound.

Such a scheme makes it possible that, once in place, the Stockholders of the union, to be applied to the tax rate of a single and consolidated between and within the 4% tax on gross income, including your federal taxes, IRPJ, CSLL, PIS, and COFINS. It is a system that facilitates the collection and reduce the burden of tax to be effective, providing greater predictability to finance real estate developments.

Within the framework of the program ‘ Minha Casa, Minha Vida (MCMV), this rate is also the most-favoured, and it can be reduced by up to 1%, are also distributed to the same duties, but, with the percentages of each of which is smaller:

Therefore, it is clear that the developers can take to the exterior rear view mirrors, they have a win-win option in taxation and providing opportunities for tax savings, and predictability of financial and simplicity of the fulfillment of tax obligations.

2. What are the changes with Tax Reform?

With the introduction of a new, systematic tax on the consumption of regulated mainly by the Law on the Supplementary 2014/2025, the various sectors of the economy will be affected by the new rules from the tax, including the construction industry.

The major changes that will impact the industry is the introduction of a Value Added Tax (VAT) of a dual nature, consisting of:

• Contributions in Goods and Services (“CBS”), the new tax is a federal matter, which will replace the IPS, the Challenging, and the PII;

• Goods and Services tax (“IBS”), the new income tax of the jurisdiction of state and municipal levels) to replace the VAT, and the ISS.

With a system of non-cumulative nature wide, for the new tax will be levied on the value added at each stage of the supply chain, which represents a paradigm shift in the system of assessment, and the flow of tax credits. This framework seeks to align in Brazil for the international community’s most state-of-the tax on to the consumer.

1. The implications of the exterior rear view mirrors:

The transition period for the implementation of the new rules from the tax reform is expected to take place between the year is 2026, and the year is 2033, but in the context of the WINDOWS, and the impact on already-it will happen in the year 2027 with the end of the PIS and Cofins tax was replaced by the CBS. 

The SRT is maintained, but there will be consequences. Except for the developments that were started before the January 1, 2029, you will not be able to collect the IBS and CBS, the inside of the WINDOWS, and this scheme is applicable only to corporate income TAX and the social contribution on net income.

So as not to impact the projects and the incorporation of already written to the incorporation of the subject of the exterior rear view mirrors prior to January 1, 2029 will be in the recollection of the guard, whose projection in the home provides for the following tax rates:

• 2,08% for real estate in general.
• 0,53% for the properties of interest, such as those covered by the Program ‘ Minha Casa, Minha Vida (MCMV).

It is expected that the wing is expected that the tax rate will be applied according to the sum of the tax rates currently in effect from the PIS and Cofins taxes on the scheme of the exterior rear view mirrors.

2. The implications of the operations of the grant of the hand and of the work:

In the building and construction industry one of the predominant activities is the distribution of the labour force, which is currently on the ISS, at a rate that can be varial to be between 2% and 5%, depending on the County in which the 

In the building and construction industry one of the predominant activities is the distribution of the labour force, which is currently suffering the impact of the ISS, at a rate which can vary between 2% and 5%, depending on the County. In addition to this, the sector suffers from the impact of the PIS and Cofins and ICMS, hitting the latter on the sale of the goods.

The effect of the new taxes imposed with tax reform, the ISS will be replaced by the IB, which 

The effect of the new taxes imposed with tax reform, the tax burden is currently the ISS, ICMS, PIS and Cofins) will increase with the forecast of a rate benchmark of 26.5%.

Preliminary studies indicate that, depending on the operational structure of the company and its ability to use deferred tax assets, the tax burden may be significant increases in the implementation of the tax reform, and considering that, at present, there are no provisions in force to balance the losses arising from inability of credit in new tax on a sheet of wages.

Most of the residential units is carried out by individuals and a lot of these operations do not allow for the generation of a loan on a new model. This restriction can be very expensive and significantly to the cost of the building, and compromise the margins of a contract, or incorporating, especially in the segments of the mainstream. Home builders and real estate developers will need to review their strategies, indicators, and, if necessary, renegotiate the terms of a balance of economic, financial, and with its contractors.

In light of this, companies with a low level of integration, low in the purchase of supplies taxable income, and the high dependence of the direct labor will tend to be the most negatively impacted, as they have a limited ability to offset the loan under the new scheme on a non-cumulative.

With respect to the tax rates, there is a provision for an increase in the tax burden incident in the building and construction industry significantly. On the face of it, the law provides tax benefits services. Let’s see:

Although there is a provision for a special regime for the taxation in the LC 214/2025, with a reduced rate on the CBS and LBS with a 50% (fifty percent) of the time, such a reduction is not able to counteract the effects of an increase in the tax burden on the sector.

In this scenario, it is observed that the implementation of the tax reform, though it will bring the promises of the simplification and streamlining of the system, and may result in significant increases in the overall tax burden for most of the companies in the construction sector, especially in those with a low capacity to generate tax credits. 

Final Thoughts

The Tax Reform was inaugurated by the LC 214/2025 it tends to change drastically for the tax to be charged on the construction sector, in particular in the following areas:

1. The fragmentation of the Basis of Calculation for the WINDOWS (from 2027, the CBS show will be taken off of the exterior rear view mirrors to the embodiments that are initiated after the 1st.January 2029, breaking with the logic of the tax rate of only 4 %, or 1 %, in the projects of MCMV). The maintenance of the corporate income TAX/social contribution on net income in the WINDOWS, no CBS/LBS, cuts off an important part of the economy, was originally designed.
2. The erosion of the Debt, The inability to pay the CBS/LBS on a sheet of wage and employing overwhelmingly by individuals to reduce the potential for recovery of the loan, adding to the negative impact on companies with low integration and high-usage of direct labor.
3. The increase in the Potential of the Charge at the Disposal of the Labour – migration from the ISS, ICMS, PIS and Cofins taxes to the tax rate of the combined estimated to be 26.5%, creates the risk of the increase being significant for the construction works, and may require revision to the contract to maintain the balance of the economic and financial aspects.

On the face of it, there is a need for re-evaluation strategy for home builders and real estate developers, who are expected to:

• Mapping projects are underway to check to see if it is feasible to anticipate the records of the incorporation of prior to-1.January 2029;
• Restructuring of supply chains, thus increasing the acquisition of services tax (vertical integration), to extend the credit;
• The renegotiation of contractual terms that provide for increases in the automatic case, the load is effective to overcome the levels-aim,
• Re pricing models incorporating both scenarios, the transition between 2026 and 2033.

In short, even if the WINDOWS continue to represent a tool for tax advantageous in the short term, the Tax Reform as a signal of a motion for the lifting of the load, and the distribution of the burden, requiring planning, tax assets, and the reviews of the contractual information. With the adoption of the strategies of vertical integration, efficient management of claims, and the dialogue in advance of with financial backers and buyers it is crucial to preserve the edges, and the economic viability of future projects.

Therefore, a detailed understanding of the new rules, combined with a strategic assessment of the operational structure of a company is crucial in order to mitigate the financial impact, to ensure the compliance of the tax and to maintain europe’s competitiveness in the new environment, rules and regulations.

Reference (s):

BRAZIL. Constitutional amendment no. 132, December 20, 2023. Changes in the National Tax System. Available at:  https://www.planalto.gov.br/ccivil_03/Constituicao/Emendas/Emc/emc132.htm. this 09.06.2025.

BRAZIL. A Supplementary law no. 214, 16 January, in the year 2025. On the Tax on Goods and Services (LBS), the Contribution of Social Goods and Services (CBS), and the duty Selection (S); setting up of the steering Committee of the IB and the changes in the tax laws. Available at: https://www.planalto.gov.br/ccivil_03/leis/lcp/Lcp214.htm. this 09.06.2025.

Brazilian chamber of Construction Industry (CBIC). building Construction grew by 4.3% in 2024, and it drives the national economy’. , Available at: https://cbic.org.br/construcao-civil-cresce-43-em-2024-e-impulsiona-economia-nacional/. this 10.06.2025.

THIS, Ieda. The committee on the Economy. Brazilian chamber of Construction Industry (CBIC). The performance of the Construction in 2024, and the prospects for the year 2025. Available at: https://cbic.org.br/wp-content/uploads/2024/12/final-desempenho-economico-cc-dezembro-2024.pdf. this 10.06.2025.

Brenda Carol is True of the Saints

A lawyer with a bachelor degree in law with an emphasis in tax law from the Universidade Paulista – UNIP (2019), and which is registered at the Ordem dos Advogados do Brasil, São Paulo (OAB/SP) (2022). A member of the Committee on environmental Law of the 33rd Division of the OAB/SP) – Brazil (2025-2027). A lawyer for the u.s. Department of Tax have Associated with it.

Barbara Giansante Moquiute:

A lawyer with a bachelor degree in law with an emphasis in tax law from Universidade Presbiteriana Mackenzie (2021), and which is registered at the Ordem dos Advogados do Brasil, São Paulo (OAB/SP) (2022). A post-Graduate degree and a specialization in Tax Law from the Pontifical Catholic University of Rio Grande do Sul (PUC/RS) (2022-2023). A member of the Committee on environmental Law of the 33rd Division of the OAB/SP) – Brazil (2025-2027). The advocate and head of the Department of Tax have Associated with it.