By Vered Nets - CEO and Luiz Cezar Giacomazi - Financial and
Tax Consultant Brazil
A country’s tax regime is always a key factor for
any business considering moving into new markets. What is the corporate tax
rate? Are there any incentives for overseas businesses? Are there double tax
treaties in place? How will foreign source income be taxed?
Brazil is a
Federative Republic, and each of the 26 states and the Federal
District have their own legislation. This gives rise to 27 regulations on
indirect state taxes, meaning varying application, administration and
compliance rules in each state. Brazilian taxes are regulated in three levels: Federal,
State and Municipal. In this article illustrates the structure of tax payments
levied on corporates doing business in and with Brazil.
Most Important Taxes
charged on a Federal level
IRPJ corporate income tax
The tax consists
of a base tax of 15%, and additional surtax of 10% on annual income over R$
240,000.00. Tax is charged on worldwide income for residents of Brazil. Some
foreign tax relief and credits can be allowed under specific tax treaties.
CSLL Social Security
The contribution
is levied at a general rate of 9%.
For financial
institutions, private insurance companies and capitalization
companies, the
rate is 15%.
PIS social contribution tax
Social
Integration Program (PIS) tax; levied on gross income at a rate of 1.65%; the
tax is a non-cumulative tax for certain taxpayers; certain companies, including
local financial institutions and companies that manufacture goods in the Manaus
Free Trade Zone, are subject to the cumulative regime and make the contribution
at a 0.65% rate; the tax is also levied on imports of goods and services at a
rate of 1.65%
COFINS Contribution for Social Security Financing tax
Social security
financing contribution (COFINS); levied on gross income at a rate of 7.6%; the
tax is a non-cumulative (VAT-type) tax for certain taxpayers; certain companies,
including local financial institutions and companies that manufacture goods in
the Manaus Free Trade Zone, are subject to the cumulative regime and make the contribution
at a 3% rate; the tax is also levied on imports of goods and services at a rate
of 7.6%
IPI federal “production” tax.
Brazil does not
have VAT as such. Two types of value added type taxes exist in Brazil: State value
added sales and services tax (ICMS) and federal excise tax (IPI). This federal
tax is levied on industrialization of products when sold by industrializing
establishment. Its rate is around 20% depending on the product manufactured,
top rates applies to luxury or superfluous goods, such as alcoholic beverages
and cigarettes
CIDE Economic domain intervention contribution Tax
Levied on
payments to non-residents. Applies to royalty payments, technology transfers
and compensation of technology supply, and technical assistance. Rate at 10%.
IOF financial transaction tax
Foreign exchange
transaction levied at varying rates on loans and credit operations, certain
foreign exchange transactions, insurance and securities transactions. Rated between
0.36% to 6% depending on the type of the transaction.
Taxes charged on
a State level
ICMS Tax on Goods and Services
This tax is
charged on sales or physical movement of goods, on freight, transportation, and
communication services. Every manufacturer, distributor, retailer or provider
of almost every type of merchandise or service pays the state ICMS and
passes the cost along to the consumer. Because this tax is largely a
"hidden" tax, in that it is not noted on any receipt nor directly on the
price of the goods, most Brazilian consumers have no idea how much the ICMS is
actually costing them. ICMS rate is between 0% to 25% (the average is
17%). ICMS is the most significant source of tax revenue, reaching up to
90% of the total collected. Each state has its own categorization of
services and goods.
Just a small
example, in the picture is a comparison of percentage paid for electric
services in few states of Brazil.
IPVA vehicle tax
Applied to the
possession of motorized vehicles (cars, trucks, motorcycles, airplanes, boats,
etc). IPVA is paid by the owner of a motorized vehicle. Rate from 2% to 5%
depending on the type of vehicle and changes from state to state.
Taxes charged on
a Municipal level
ISS Tax on Services
Paid by all entities
registered and doing business within a city. The exact rate varies depending
upon the individual municipality or city. The ISS applies to services that come
from or that have started abroad. Therefore, every time a contract is signed
with companies abroad and the service is provided, the Brazilian contract party
will be liable to taxation, regardless the actual payment. The value charged
varies according to the municipality, so it is important to check the ISS
legislation of the municipality where the company is located. Tax rates varies
from 2% to 5%
For example: in
Rio de Janeiro, system analyses, development and programing services will be
charged at 5% but if the development is registered as local it will be charged at
2%.
IPTU Real Estate Tax
Yearly property
tax on houses, condominiums, apartments, etc., based upon the value of the
property. Varies from 0.6% up to 14% of
the assessed value of the property, depends on the municipality concerned.
Super Simple !
On 2007, the
Brazilian tax authorities issued standard instructions to regulate the simplified
tax regime (super simples) announced by the Brazilian government through
Complementary Law n° 123/2006.
The new
regulation authorizes companies under this regime—those with annual gross
revenues of up to R$360,000 to pay a
single tax instead of the following federal, state, and municipal taxes:
- IRPJ federal, corporate income tax
- CSLL federal, social contribution on net income
- PIS and COFINS federal, contributions levied on income
- IPI federal, excise tax
- ICMS state, taxes on goods and services
- ISS municipal, services tax
Meaning paying
all taxes at once, this signifies an all less burden and confusion for those companies.
INCENTIVES
Brazil offers
incentives through the reduction of domestic taxes or exemption from
withholding tax in the forwarding of royalties or commissions on international
financing. In addition to incentives for exports, there are incentives for the
implementation of industrial units in specific regional areas.
There are also
some programs linked to research activities or technological and cultural
activities. The most important of these are:
- Fiscal incentives for new projects in Brazil North and North East
- Fiscal incentives for development and new technologies
- Fiscal incentives for new projects in Brazil (Petroleum- Repenec, Aviation – Retaero)
- Special basis of taxation for the export of IT services
- Special tax incentives for exporting companies in the acquisition of fixed assets and equipment
- Special tax incentives for computer manufacturing companies investing in new technology
One more
incentive that is important is the Mercosur agreement - it is a Free Trade
Agreement among five countries in Latin America. Israel joined this agreement
since 2005, and the agreement is gradually revealing its power. It should be
noted that Israel is the only country outside of Latin America to have such an agreement
with the Mercosur countries.
Abbreviations
ICMS Imposto sobre a Circulação de Mercadorias e Prestação de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação
CSLL Contribuicao social sobre o licro liquido
IPI Imposto sobre Produtos Industrializados
ISS Imposto sobre Serviços
COFINS Contribuição para Financiamento da Seguridade Social
PIS Programa de Integração Social
IOF Imposto sobre Operações Financeiras
IPTU Imposto predial territorial urbano
CIDE Contribuição de Intervenção no Domínio Econômico
CPMF Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira
IPVA Imposto sobre a Propriedade de Veículos Automotores
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Please note that
this publication should not be regarded as offering a complete explanation of
the taxation matters that are contained within this publication. For tax
consultation please contact Info@vega-bi.com
To read more
http://riotimesonline.com/brazil-news/rio-business/iof-tax-zeroed-to-protect-the-real/#
- IOF reduction