Tax Reform: The end of ICMS and its tax credit balances

Procedures, limitations, and opportunities for companies in the use of tax credits

By Fabiana Soares

Complementary Law No. 227/2026, among other provisions, addressed the use of ICMS (Value-Added Tax) credit balances, which had previously been a source of uncertainty for taxpayers. With the Tax Reform, this tax will be gradually phased out and replaced by the Goods and Services Tax (IBS).

This transition requires a strict procedure for the preservation and use of tax credits accumulated up to December 31, 2032. The use of these credits will depend on tax compliance and adherence to the applicable deadlines.

Proper management of these credits will be essential for companies seeking to preserve their rights and ensure their utilization during and after the transitional period.

Approval Procedures

For credits to be valid starting in 2033, they must be properly recorded and approved by the tax authorities. Taxpayers must file their application for approval within five years from January 1, 2033.

States and the Federal District will have 24 months to review the application; if no decision is made within that period, approval will be deemed to have occurred, automatically ensuring the right to the credit.

Important Note

Approved ICMS credits will be converted and applied exclusively within the IBS framework; their use to offset CBS liabilities is expressly prohibited.

Fixed assets credits

Credits related to fixed assets (CIAP) follow specific rules. For entries effective on or after January 1, 2029, validation must be requested within the same reporting period in which the credit begins to be used. The tax authorities will have 60 days to respond; failure to do so will result in tacit approval. Once validated, the credit may be used until the end of its remaining term, in accordance with CIAP regulations.

Credits that are not tied to assets, such as inputs, goods, or services, may be used in up to 240 consecutive monthly installments.

Ways to use these credits include:

• Offset against ICMS tax credits, whether established or not;
• Direct offset against IBS due;
• Transfer to third parties or companies within the same economic group;
• Reimbursement in cash, when applicable.

Regarding goods in inventory as of December 31, 2032, that were subject to withholding under tax substitution (ICMS-ST), the credit for the withheld tax may also be utilized, but it follows a specific procedure.

An inventory will need to be taken, the ICMS-ST amount assessed, and a report submitted to the state tax authority and to the IBS Management Council (CGIBS). The state tax authority will have 60 days to inform the CGIBS of the amount, and the offset will be made in 12 monthly installments.

The approval to be carried out by the tax authorities must involve rigorous scrutiny of the figures determined; therefore, it is important that all amounts claimed are correctly reported and validated by the company to avoid exposure to the tax authorities.

Also read: Tax Reform and Split Payment: how tax collection procedures will change

Maximize your business results with DPC

Count on Domingues e Pinho Contadores to analyze the effects of the changes and develop a tax strategy aligned with the reform. Contact our team: dpc@dpc.com.br.