Understanding Split Payment in Brazil: A Step Towards Smarter Tax Collection

As Brazil advances in its journey of tax reform, one of the concepts gaining traction is the implementation of the split payment mechanism. While still in early stages of discussion and development, this model has the potential to reshape how taxes are collected in B2B and digital transactions across the country.

What Is Split Payment?

Split payment is a tax collection model in which the value of a transaction is divided at the time of payment:

• One portion goes to the seller (net of tax),

• The tax portion is automatically withheld and sent directly to the government.

This system reduces the risk of tax evasion by ensuring that taxes owed never even reach the taxpayer’s bank account. It also simplifies compliance and increases transparency.

How It Will Work in Brazil

Though still not officially implemented, Brazil is actively discussing the adoption of split payment as part of its consumption tax reform, which includes the introduction of the IBS (Imposto sobre Bens e Serviços) and CBS (Contribuição sobre Bens e Serviços).

Here's how it is expected to function:

• During a purchase, the payment processor (e.g., a bank or fintech) would automatically separate the tax amount.

• The tax is transferred directly to the Receita Federal (Brazilian tax authority).

• The remainder is paid to the seller.

This method is particularly relevant for marketplaces, payment intermediaries, and digital platforms, where operations are already highly automated.

Global Benchmarks: How Other Countries Use Split Payment

• Italy & Poland: These countries use split payment specifically for VAT on high-risk transactions. In Italy, it is mandatory for government-related suppliers.

  
  

• United Kingdom: Considered but not fully implemented; similar mechanisms apply to construction and certain digital services.

  
  

• Romania: Previously used split payment for VAT, but later relaxed due to administrative complexity.

Comparison with Latin American Collection Mechanisms

While split payment isn't widespread in Latin America under that name, similar systems already exist in countries like Argentina, Mexico, Colombia, and Peru:

🇦🇷 Argentina

• Uses withholding and perception regimes across VAT, income tax, and local turnover taxes (Ingresos Brutos).

• Banks, credit cards, and large taxpayers act as agents, deducting taxes at the moment of transaction.

• Effectively, sellers receive net amounts, similar to what would happen under split payment.

  
  

🇲🇽 Mexico

• Platforms like Uber, Airbnb, and MercadoLibre automatically withhold VAT and income tax for registered sellers.

• This is mandated by the tax authority and targets the digital economy.

  
  

 🇨🇴Colombia

• Operates with withholding at source and self-withhoding, particularly in B2B operations.

• Similar in spirit to split payment, though not centralized through payment intermediaries.

  
  

🇵🇪 Peru

• Implements a system called "Detracciones", where a buyer deposits part of the payment into a special account at Banco de la Nación for tax purposes.

• The supplier can only use these funds to pay taxes.

  
  

Why Split Payment Matters for Brazil

Implementing split payment would represent a paradigm shift in tax administration in Brazil:

• Greater tax collection efficiency

• Reduced compliance risk

• Encourages automation and digital integration for businesses

It aligns with the broader digital transformation of Brazil's tax system, following the success of NF-e, SPED, and DCTFWeb.

Final Thoughts

While not yet fully defined, the adoption of split payment in Brazil could place the country among global leaders in innovative tax compliance. As we await further regulatory developments, businesses should prepare by evaluating their financial systems, payment processes, and ERP integrations.

Brazil’s path to tax simplification is ambitious, and split payment might be one of its most transformative tools yet.