LC 235/2026 Introduces New Tax Measures for Fuels, Biofuels, Agribusiness, and Fertilizers
On August 28, Lei Complementar nº 235/2026, which originated as PLP 114/2026, was published, establishing a package of fiscal and tax measures addressing the effects of the shock in international energy markets. Although one of the new law’s principal effects is to create a framework under which the Federal Government may implement further reductions in federal taxes on certain fuels during 2026, LC 235/2026 has a broader scope, covering biofuels, agribusiness, and fertilizers.
Fiscal mechanism. As an extraordinary measure for fiscal year 2026, LC 235/2026 permits forgone revenue resulting from Executive Branch actions intended to mitigate the effects of the shock in international energy markets to be offset by extraordinary increases in Federal Government revenues arising, directly or indirectly, from the same event. In that case, the offset requirement under art. 14 of the Lei de Responsabilidade Fiscal will be deemed satisfied. The mechanism may be used to reduce rates of federal taxes applicable to the importation, production, and sale of road diesel, biodiesel, gasoline and its component streams, ethanol, and aviation kerosene. Extraordinary revenues that may support the offset include increases in royalties and special participation payments from oil and natural gas, revenues from the sale of the Federal Government’s share of oil and gas production, tax revenues generated by the oil and gas sector, and dividends received by the Federal Government from companies in the sector.
Covered fuels. The legislation addresses diesel, biodiesel, gasoline, ethanol, and aviation kerosene. It is important to note, however, that LC 235/2026 does not itself reduce the rates currently applicable to these fuels. Any tax relief will depend on specific implementing measures issued by the Executive Branch.
Protection for biofuels. The possibility of reducing taxes on fossil fuels is accompanied by mechanisms intended to preserve the competitiveness of biofuels. Key measures include:
General competitive-differential rule: any tax-reduction measure applicable to fossil fuels, including through a subsidy, must preserve the favorable competitive differential for the corresponding biofuel, both in percentage terms and on an absolute per-unit-of-measure basis, using the position before the international conflict as the reference point.
Specific gasoline-and-ethanol rule: a reduction of 30% or more in federal taxes on gasoline must result in the corresponding rates applicable to ethanol being reduced to zero, while preserving the competitive differential.
Subsidy for hydrous ethanol: the law provides for an extraordinary subsidy of up to R$ 1.2 billion for producers and producer cooperatives of hydrous ethanol, covering the period from May 25 through August 11, 2026. Eligibility, calculation, verification, and payment criteria will be established by regulation.
Subsidies for biofuels generally: the legislation provides for subsidies to biofuel producers and producer cooperatives whenever a reduction in taxes on the corresponding fossil fuel would undermine the absolute differential established by law.
Payment of subsidies and reimbursements. The law provides financial protection for economic operators participating in fuel-sector subsidy or reimbursement programs. Once the required documentation has been submitted, amounts due must be paid within 30 days. Failure to meet that deadline will trigger interest at a rate equivalent to the taxa Selic and entitle the economic operator to recognition of the corresponding credit against the Federal Government. Subject to applicable regulations, the credit may be used to offset, reduce, or settle obligations.
Offsetting PIS/COFINS credits. LC 235/2026 permits legal entities that produce ethanol to use certain PIS/Pasep and COFINS credit balances accrued through August 28, 2026, to offset their own past-due or not-yet-due tax and contribution liabilities administered by the Receita Federal. Use of the credits will require prior authorization from the Receita Federal and will be subject to an aggregate limit of R$ 750 million in 2026. If the credits submitted by authorized producers exceed that limit, the available amount will be allocated pro rata based on each taxpayer’s share of hydrous ethanol production in 2025, according to information provided by the ANP. The legislation also establishes rules for carrying these credits into 2027, allowing them, in certain circumstances, to be offset against CBS liabilities as well.
Tax reform context. LC 235/2026 also amends Lei Complementar nº 214/2025, which governs the IBS and CBS. Key changes include:
Reduction in the minimum export threshold: the minimum percentage of gross revenue from exports required as one of the conditions for the IBS and CBS suspension regime applicable to the supply of in natura agricultural products has been reduced from 50% to 30%, based on the three preceding calendar years. The measure potentially expands the pool of agribusiness companies that may benefit from the regime.
Neutralization of temporary tax relief: for certain fuels whose rates were reduced between March and June 2026, the rates in effect in February 2026 must be used, for purposes of calculating the direct tax burden under LC 214/2025, for the months in which the reduction applies. The measure prevents exceptional and temporary tax relief from artificially lowering the benchmark used in the new fuel-tax regime.
Fertilizer production incentives. LC 235/2026 establishes a new incentive framework for projects involving the domestic production of fertilizers and their raw materials, as well as remineralizers, bioinputs, and biofertilizers. Between 2027 and 2031, tax credits may be granted, initially subject to an aggregate annual cap of R$ 1 billion, which the Executive Branch may increase by up to an additional R$ 1 billion per year. The credit may equal up to 20% of eligible expenditures, as provided by regulation. The incentive will not be automatic: projects must first be approved and submitted to a competitive selection process, with criteria including social and environmental sustainability and the adoption of emissions-reduction technologies. The credits may be used to offset federal taxes or claimed as cash reimbursements. In addition, between 2027 and 2031, AFRMM will not apply to goods destined for approved projects, subject to a cap on forgone revenue of R$ 200 million per year and R$ 1 billion for the entire period.
Implications for businesses. Companies in the energy, oil and gas, fuels, biofuels, aviation, transportation, and logistics sectors should closely monitor upcoming Executive Branch measures, as potential rate reductions could affect not only the tax burden but also pricing, margins, supply contracts, pass-through mechanisms, and economic and financial rebalancing clauses. Ethanol producers and cooperatives should act especially quickly: in addition to the regulations governing the extraordinary subsidy, they should assess PIS/COFINS credit balances potentially covered by the new framework and monitor the authorization procedures with the Receita Federal. Agribusiness exporters should reassess their eligibility for the IBS and CBS suspension regime in light of the reduction in the historical minimum export threshold from 50% to 30%. Parties involved in fertilizer, bioinput, and related infrastructure projects should likewise monitor the regulations governing the tax credits, authorization procedures, and the AFRMM benefit.
LC 235/2026 took effect on August 28, 2026, but a significant portion of its economic impact will depend on the implementing regulations to be issued in the coming weeks and months.
Contact us for more information about the regulations implementing the new legislation and its impact on stakeholders across the energy, biofuels, agribusiness, and infrastructure sectors.