MANAGE CORPORATE TAXES IN BRAZIL - LAW
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3RD EDITION LAW
MANAGE
CORPORATE TAXES
IN BRAZIL
Sponsor:
American Chamber of Commerce for Brazil - AMCHAM
International Affairs Department
Brazil, 2015/2016
*This guide is part of the project
ACKNOWLEDGMENTS
AcknoWLEdGEMEntS
ACKNOWLEDGMENTS
The American Chamber of Commerce for Brazil, being the largest Amcham outside the Unite
States is constantly serving its members by building bridges for Brazilian businesses worldwide
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welcome you and hope that the information you are about to read serves you best.
Gabriel
GabrielRico Rico
- CEO, Amcham
- CEO, Brasil Brasil
Amcham
The 2015 economic conjuncture presents challenges for Brazil’s growth. Nevertheless, once the fiscal
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deadlines and have a real competitive advantage. This joint publication with AmCham offers a practical
guideJoão Paulo Fagundes,
to understand the Brazilian taxFounding
procedures, Partner Lia Esposito
with clear guidelines for all areasRoston, Partner
of business.
Rayes & Fagundes Advogados Associados Rayes & Fagundes Advogados Associado
João Paulo Fagundes, Founding Partner Lia Esposito Roston, Partner
Celso Costa - Partner, Machado, Meyer, Sendacz e Opice Advogados
Rayes & Fagundes Advogados Associados Rayes & Fagundes Advogados Associad
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contEnt 01 IntroductIon 06 02 fEdErAL tAXES 08 03 StAtE tAXES 21 04 MunIcIPAL tAXES 24 05 tAX BEnEfItS 25 06 IntErnAtIonAL tAX MAttErS 30 07 forEIGn trAdE 46 08 ABout our SPonSor 49
01.
Introduction
As in most Latin countries, the Brazilian legal system is valid legislation defining its main aspects (understood by
based on civil law. Accordingly, the rules are established scholars and precedents as the taxable event, the taxable
by the legislation in force and precedents do not frequently basis and the applicable rate).
have a significant global role regarding the tax system in
Taxes may be levied by federal, state and municipal
Brazil, since they are, as a general rule, applicable only
governments and also by the Federal District, which
to the litigants themselves. However, it is important to
accumulates state and municipal jurisdictions. As a
note a recent global trend both in civil and common law
rule, the same tax may not be imposed by two different
jurisdictions to single out relevant elements from the
federation spheres. Regarding state and municipal taxes,
other model and combine them with the elements of the
there is usually a nationwide Law contemplating the
original legal system. Brazil is also following this trend
guidelines to be followed by the States/Municipalities.
and has been adapting its civil law system in order to
Notwithstanding, States and Municipalities are still
insert some features of common law jurisdictions, such
allowed to rule many aspects concerning the imposition of
as the binding precedent institute, the repetitive appeal,
the tax under their jurisdictions that will apply within their
according to which all matters regarding the same subject
territory, as well as may have their own interpretation of
are suspended until the higher courts issue a decision to be
the nationwide guidelines, almost creating an independent
applied to all cases dealing with the same matter.
system, which results in the existence of a highly complex
Specifically for the Brazilian tax system, it has its tax system in Brazil.
general rules outlined by the Federal Constitution, which
The judgment of tax-related controversies takes place in
determines precisely which taxes can be imposed, by
the administrative sphere and/or the judicial sphere. As
which member of the federation, and what is the taxable
a rule, the discussion is initiated at the administrative
event. Also, the Federal Constitution determines the
level, in which there are judgment instances,
immunities and the main tax principles.
sometimes with a collegiate with the participation of
The Brazilian tax system is based on several principles, taxpayers’ representatives in the second instance. The
among which the most important is the strict legality, controversy may be taken to the judiciary either after,
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whereby, except for some specific constitutional before or alternatively to the administrative level. The
authorizations, no tax can be imposed unless there is a controversy may also initiate in the judiciary if it refers
6to a claim by the taxpayer regarding the interpretation into Law 11,941, dated May 27, 2009, to neutralize the impact
or application of certain legal provisions. Additionally, of the new accounting methods and criteria introduced under
at the administrative level, most jurisdictions provide Law 11,638/07 that affects the basis for calculating federal
a procedure for a taxpayer to formally consult tax taxes. The referred law introduced relevant changes in the
authorities on the most adequate tax treatment that shall Brazilian corporate law, which, in essence, led to the adoption
apply to its transactions. of new Brazilian generally accepted accounting principles
(“New BR GAAP”) that are closer to the international
The federal taxes are managed by the Brazilian Revenue financial reporting standards (IFRS).
Service (Secretaria da Receita Federal do Brasil – “RFB”),
subordinated to the Economics and Finance Ministry In addition, MP 627/13 (later converted into Law
(Ministério da Fazenda). The states, municipalities and 12,973/14), introduced specific tax rules applicable to
the Federal District have similar agencies that manage the certain transactions that impacts the calculation of the
taxes attributed to them by the Federal Constitution. taxable profit of the entities performing such transactions,
as such rules created specific additions and exclusions
On December 3rd, 2008, the President of Brazil sanctioned (such as in the case of stock option plans, concession
Provisional Measure (“MP”) 449/08, which was converted agreements, leasing agreements, among others).
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
702.
FEDERAL TAXES
The profit as determined by the tax authorities; and
IRPJ and CSLL – Corporate income
taxes
The Simplified Regime for the collection of federal taxes.
The Corporate Income Tax (“IRPJ”) and the Social
Contribution on Net Profits (“CSLL”) (jointly referred as
Real Profits Regime
Corporate Income Taxes – “CIT”) are imposed on the taxable The applicable legislation defines the real profit as being
profit of a corporate taxpayer. For that purpose, the taxable the accounting profit accrued by the company, adjusted by
profit includes the income when it becomes economically additions and exclusions provided by law.1
or legally available to the recipient, regardless of the actual
receipt in cash (accrual basis). Over the accrued result, the CIT will be imposed as follows:
The CIT are imposed on income derived by all legal entities IRPJ, levied at a 15% rate plus a surtax of 10% over
located in or operating within Brazil. Resident legal entities the profits (taxable basis) that exceed the value of R$
are those incorporated under Brazilian applicable laws. 240,000.00 yearly; and
The branches, agencies and representative offices of non-
resident legal entities are also treated as Brazilian entities CSLL, levied at a 9% rate. Financial institutions are
for CIT purposes. subject to CSLL at a 15% rate.
According to the Brazilian tax law, there are basically four Under the real profit regime, the taxable profits may be
calculation regimes for CIT, namely: assessed annually or quarterly. In the annual assessment
there is an obligation to monthly anticipate the CIT.
The Real Profits Regime;
It should also be mentioned that the tax losses may be
The Presumed Profits Regime; carried forward indefinitely. Non-operational losses may
be carried forward, but they may be solely offset with non-
1. Pursuant to the applicable tax legislation, as a general rule, deductibility of expenses incurred by Brazilian corporate taxpayers for CIT purposes is conditioned to the characterization of such
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expense as usual, ordinary and necessary for the development of the operational activities of the company. Therefore, only the expenses effectively incurred by the corporate taxpayer that are directly
related to the development of business activities may be treated as deductible expenses for the assessment of the taxable basis of the CIT. Expenses that do not comply with the general principles
or specific rules are not deductible. In general, accounting provisions are not deductible. Further, an additional requirement for an expense to be qualified as a deductible expense for tax purposes is
the need of such expense being supported by reliable documents that evidence its incurrence and payment.
8operational profits, such as capital gains. On its turn, tax made annually and may be renewed every year. Under the
losses carry back is not authorized under Brazilian tax law. Presumed Profits Regime the profits are calculated and the
taxes collected on a quarterly basis.
In addition, the tax losses are lost in the following scenarios:
According to the applicable tax legislation, the legal entity
The company generating the losses is merged into whose gross revenue in the previous calendar year was
another entity; or equal or lower than R$ 78,000,000.00 or R$ 6,500,000.00
multiplied by the number of months of its activity during
If there is a change in the control and business activity the previous calendar year. When lower than twelve
performed by the loss-generating company. months, may opt for the Presumed Profits Regime. The
option for the Presumed Profits Regime can only be made
The tax losses may be offset against the taxable profits only up
by the legal entity that is not within the prevented entities
to the limit of 30% of the real profit of the period.
listed by Section 14 of Law nº. 9,718/98.2
Presumed Profits Regime The CIT taxable basis of the entities subject to the presumed
profit is quarterly calculated through a pre-defined percentage
The Presumed Profits Regime is a simplified regime to of the operating gross revenues. Such percentage differs
determine the taxable basis of the CIT, which takes into account according to the company’s activity. In relation to the IRPJ the
a pre-defined percentage of the operating gross revenue to percentages to be applied over the gross revenues are: 1.6% for
determine the profit of the taxable activity. To such profit other the commercialization of fuel, 8% for the commercialization
types of income not directly related to the taxpayers’ activity of goods in general, and 32% for the rendering of services. On
are added (e.g.: capital gains, financial revenue, etc.). its turn, the applicable percentages for these same activities in
relation to the CSLL are 12%, 12% and 32%, respectively.
The election for the Presumed Profits Regime is an option
available to the taxpayer not obliged to assess the IRPJ The tax rates applicable to the Presumed Profits Regime are
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
and the CSLL under the Real Profits Regime (as further the same of the Real Profits Regime. Therefore, the IRPJ
commented, the law prevents some taxpayers to make rate is 15%, plus the surtax of 10% over the taxable basis
such election). The option for the referred method is value that quarterly exceeds R$60,000.00, considering
2. Section 14 – The accrual by the real profit is mandatory to:
I – Legal entities that derived, in the previous calendar year, total revenues higher than the limit of R$78,000,000.00 (seventy eight million reais), or proportional to the number of months of the
period, when lower than 12 (twelve) months;
II – Companies with profits, income or capital gains earned offshore;
III – Companies with capital gains earned offshore;
IV – Companies, authorized by the tax legislation, to enjoy tax benefits related to exemption, or tax reduction;
V – Companies which, during the calendar year, have done monthly payments by the estimative regime, as provided in Section 2 of Law nº. 9,430/96;
VI – Companies that explore the cumulatively and continuously rendering of credit counsel services, credit management, management of payable and receivable accounts, purchase of credit rights
originated by installment sales or rendering of services (factoring); and
VII – Companies which explore securitization of real estate, financial and agribusiness credits.
9that, once adopted the Presumed Profits Regime, the taxes determined by applying the percentages established by the
will be definitive quarterly calculated. On its turn, the rate applicable tax law over the gross revenues earned monthly.
of CSLL is 9%. Such percentages vary from 4% to 22.45%, depending on
the activity and the gross income of the legal entity.
Therefore, in practice, the effective IRPJ and CSLL
rates for legal entities engaged in commercial activities
The Determined Profits Regime is
or service rendering correspond to 3.08% and 10.88%,
applicable when:
respectively, over the gross sales or services revenues,
without deduction of expenses or costs. The Determined Profits Regime is applicable in the
hypothesis in which:
In order to assess the taxable basis of the Presumed Profits
Regime, the total amount of capital gains and other types The taxpayer fails to maintain commercial and tax
of income not directly related to the taxpayers’ activity records in accordance with the applicable tax laws;
shall be added to the presumed profit basis to assess the
The taxpayer’s bookkeeping evidences fraud, defects
CIT taxable basis under this method.
or errors which make it impossible to verify the actual
Finally, tax losses cannot be used to offset profits under the transactions undertaken or to determine the CIT due and
Presumed Profit Regime. payable by the taxpayer based on the actual profit; or
Simplified Profits Regime (SIMPLES) The taxpayer inappropriately opts to calculate and pay
CIT under the Presumed Profits Regime.
The Brazilian legal entities whose annual gross
income do not exceed R$ 3,600,000.00 may opt for a If the legal entity’s gross revenue is known, the taxable
simplified regime for the assessment of CIT, to the Tax basis of the Determined Profits Regime is calculated
on Manufactured Products (“IPI”), the Contribution to by applying the following percentages over such gross
the Employees’ Profit Participation Program (“PIS”), revenues increased by a 20% rate:
the Contribution to the Financing of the Social Security
8% for commercial activities and for products and
(“COFINS”), the social security contributions, the State
hospital services;
Value-Added Tax (“ICMS”) and the Tax on Services
(“ISS”). In addition to the limit of R$ 3,600,000.00 for 1.6% for resale of fuel, ethyl alcohol and natural gas,
annual gross revenues derived from domestic transactions, which are destined to consumption;
the entities may also earn up to R$ 3,600,000.00 for
export transactions and still be able to benefit from the 16% for rendering of transport services, except
Simplified Profits Regime. freight services, case in which the applicable
percentage is 8%; or
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The amounts due under the Simplified Profits Regime
(which encompass all the aforementioned taxes) are 32% for the rendering of other services.
10Banks, financial institutions and similar entities are subject
PIS and COFINS – Gross revenue
to a specific percentage of 45% for the determination of
and import taxes
the taxable basis.
The PIS and the COFINS are federal taxes imposed on
In all cases, the applicable tax rates are the same of Real legal entities’ gross revenues.
Profits Regime and Presumed Profits Regime.
Initially, the PIS and COFINS were charged exclusively on a
Provisional Tax Regime - RTT cumulative basis, at a 0.65% and a 3% rate, respectively, and
were not recoverable. Due to the harmful cascading impact it had
On December 3rd, 2008, the President of Brazil sanctioned MP
to some companies, in 2003, the federal government decided to
449/08, which was converted into Law 11,941, dated May 27,
create the non-cumulative regime of PIS and COFINS.
2009, to neutralize the impact of the new accounting methods
and criteria introduced under Law 11,638/07 that affects the The PIS and COFINS non-cumulative regime was
basis for calculating federal taxes. The referred law introduced established by Laws 10,637/02 and 10,833/03, which
relevant changes in the Brazilian corporate law, which, in determined the imposition of those contributions at the
essence, led to the adoption of new New BR GAAP which is 1.65% and 7.6% rates respectively.
closer to the international financial reporting standards (IFRS).
The innovation brought by such Laws refers to the credit
Law 11,941/09 created the RTT, which intended to uphold mechanism, under which the taxpayers subject to the non-
the principle of tax neutrality. RTT could be applied cumulative regime may deduct PIS and COFINS credits,
voluntarily in 2008 and 2009 for the purposes of assessing at the same rates above, calculated on the amount of
the taxable basis of the CIT and the PIS and COFINS certain specific payments made by the taxpayer, such as
contributions, but became mandatory in 2010. the acquisition of inputs and goods for resale. Said credits
may be used to offset the PIS and COFINS due by the
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
MP 627/13 (later converted into Law 12,973/14) established same taxpayer on future transactions. Regarding the credit
that RTT would be revoked after December 2014 and, mechanism, Laws 10,637/02 and 10,833/03 establish an
therefore, from January 2015 onwards, Brazilian taxes must exhaustive list of payments that entitle taxpayers to recognize
be calculated based on the New BR GAAP, founded on IFRS PIS and COFINS credits (i.e., only the transactions that are
rules3. Therefore, the tax neutrality of the New BR GAAP is listed give raise to credits).
no longer applicable. Law 12,973/14 also introduced specific The cumulative regime is still applicable to companies that
tax rules applicable to certain transactions that impacts the assess the CIT under the Presumed Profits Regime and to
calculation of the taxable profit of the entities performing certain legal entities listed by the law, such as co-op entities
those transactions, as such rules created specific additions and legal entities immune to taxation. Financial institutions,
and exclusions (as well as in the case of stock option plans, insurance companies and similar entities are also subject to PIS
concession agreements, leasing agreements, among others). and COFINS under the cumulative regime, but the COFINS is
3. Taxpayers could elect to anticipate the effects of Law 12,973/14 for the 2014 fiscal year. 11imposed at a 4% rate and some deductions are authorized from import of goods (2.1% and 9.65%, respectively).There were
the taxable basis. no changes to the rates imposed on the import of services. This
new treatment will enter in force in the fourth month following
Even in situations where the taxpayer is generally subject to the publishing of MP 668/2015 and may become permanent in
the non-cumulative regime, the revenues of certain activities the event MP 668/2015 is converted into law.
specified by the legislation are subject to the cumulative regime
Recently, the legislation has been modified in order to impose
(such as telecommunication, news-related services and radio
a 1% additional COFINS rate to some products. If the importer
and television broadcasting, for instance). In this sense, the
is under the non-cumulative regime, it may recognize PIS and
same company could have, in the same accrual period, part of
COFINS credits on the import of products for resale and of
its revenues taxed by PIS and COFINS under the cumulative
products and services that will serve as input, among others.
and part taxed under the non-cumulative regime.
In some situations, the amount of credits assessed may surpass
As a rule, PIS and COFINS are neither imposed on revenues the amount of debts. It may happen, for example, in export
related to the export of products or services nor on the sale of transactions (as the export of products is exempt of PIS and
fixed assets. It should be noted, however, that revenues arising COFINS, but the law still authorizes the recognition of credits
from the sale of equity interest accounted as current assets on the inputs, etc.). In such case (of export transactions), the
are subject to PIS and COFINS at the rate of 0.65% and 4%. taxpayer may either maintain the credits in its records and use
The taxpayer is allowed to exclude the amounts incurred for them to offset future PIS and COFINS debts or request the
the acquisition of the interest from the taxable basis of the government to reimburse or authorize the offsetting of such
contributions. amounts against other federal taxes managed by RFB, such as
IRPJ, CSLL or IPI, according to the conditions established by
PIS and COFINS may also be imposed under the monophasic
the specific legislation.
regime (regime monofásico), applicable to certain products,
such as cosmetics, beverages, and other products expressly II – Import tax
determined by the legislation in force. This system works like a
The Import Tax (“II”) is imposed on the import of foreign
tax substitution regime, in which the importer or manufacturer
products, i.e., products manufactured or extracted abroad
is liable for the collection of the PIS and COFINS imposed on
and brought into Brazil. The taxable basis is the customs
the whole commercial chain at a higher rate.
value, whose definition follows the Customs Valuation
Additionally, since May 1st, 2004, the import of services Agreement, which is part of the General Agreement on
and products is also subject to PIS and COFINS, which are Trade and Tariffs (“GATT”). Based on said Agreement, the
imposed on the total value of the imported services or products customs value corresponds, in general, to the Cost, Insurance
(in accordance with the formulas established by RFB) at the and Freight (“CIF”) value of the imported products, plus
rates of 1.65% and 7.6%, respectively, as a general rule. These additional expenses with wharfage.
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rates were altered by MP 668/2015, published on January 30th,
The II rates vary in accordance with the tax classification
2015, which provides more burdensome general rates for the
code of the imported product in the Mercosur Common
12Nomenclature (“NCM”), which follows the Commodity products, on their turn, should be subject to a higher IPI
Description and Coding System (Harmonized System). burden, meaning that the applicable rates are higher.
Based on these codes, Mercosur established a common
The IPI legislation defines manufactured product as any
table of import tax rates (Mercosur Common External
product subject to industrialization process, i.e., any product
Tariff table – “TEC”), with possibility of limited variations
that has undergone a process that modifies its nature, its
on the rates applied by each jurisdiction.
functioning, its finishing, its presentation, etc.
The II cannot be recovered by the importer.
Moreover, the IPI is a non-cumulative tax, which means
that the IPI due in prior transactions (including the import
IPI – Tax on manufactured of products), can be offset against the IPI assessed by the
products taxpayer regarding its subsequent taxed transactions.
The IPI is not imposed on the export of manufactured
The IPI is imposed on transactions with manufactured
products. In some situations, the amount of credits assessed
products, including imports or domestic sales. Regarding
by the company may surpass the amount of debts. In such
domestic sales, the taxpayer may be the importer, the
cases, the taxpayer may maintain the credits in its IPI
manufacturer or a company treated as an industrial
records and use them to offset future IPI debts or request
establishment by the IPI legislation, such as companies that
the government to reimburse or authorize the offsetting of
sell imported products or manufactured products by other
such amounts against other federal taxes managed by the
company under a tolling agreement, among many others.
RFB, such as IRPJ, CSLL, PIS and COFINS, according to
On the import, IPI taxable event occurs on the customs the conditions established by the specific.
clearance of the products and the taxable basis is the customs
value added by the amount of II due on the import. On IOF – Tax on financial transactions
domestic sales, the taxable basis is, as a rule, the value of the
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
The Tax on Financial Transactions (“IOF”) is imposed on
transaction. The legislation also establishes a minimum taxable
several financial transactions. The IOF can be imposed on
amount, which corresponds to the minimum taxable basis to be
credit transactions (“IOF/Credit”); on the execution of currency
adopted on transactions carried out between related companies,
exchange agreements (“IOF/Exchange”); on the acquisition of
characterized as such by the IPI legislation.
securities (e.g., shares, quotas of investment funds, bonds and
The applicable IPI rates vary in accordance with the tax notes traded in organized markets, etc.) (“IOF/Securities”);
classification code of the product under the NCM, used on insurance transactions (“IOF/Insurance”); and on the
as a basis for the IPI table of rates – TIPI. Also, according acquisition of gold (“IOF/Gold”).
to the Federal Constitution, the IPI rates must obey the
essentiality and selectivity principles, which means that Next we present a chart containing the taxpayer and the
essential products should be subject to a lower rate in order party liable for the IOF collection, as well as the applicable
to reduce their final cost to the end consumer. Nonessential rates for each taxable event:
13Taxpayer and
Party Liable for
Tax Current Tax Rate4
the Collection of
the IOF
IOF/Credit The taxpayer of The IOF/Credit taxable basis and applicable rates vary according to the characteristics
the IOF/Credit is of the credit transaction, such as if its principle amount and term are defined:
the borrower and
If the principal amount and the term are defined: 0.0041% (if the borrower is a
the party liable to
legal entity) or 0.0082% (if the borrower is an individual) tax rate per day, plus
collect the tax is
an additional 0.38% on the principal amount. The daily rate is limited to 365 days
the legal entity that
(i.e. to a maximum 1.5% or 3%, depending whether the borrower is a legal entity
grants the credit.
or an individual, plus the additional 0.38%);
If the principal amount is defined and the term is not defined: 1.5% (if the borrower
is a legal entity) or 3% (if the borrower is an individual), plus an additional 0.38%, on
the principal amount;
If the principal amount is not defined: 0.0041% or 0.0082% (depending whether
the borrower is, respectively, a legal entity or an individual) per day on the sum
of the daily outstanding balance calculated in the last day of each month, plus an
additional 0.38%, on the principal amount.
There are some transactions exempted from IOF/Credit taxation (or subject to zero
rate), such as those:
Related to export transactions, as well as those supporting the production or
encouraging export transactions;
Related to advance payments of export foreign exchange agreements;
Performed by financial institutions with public or private resources, for the funding of
transactions performed as of April 2nd, 2013, destined to the acquisition, production and
leasing of capital goods, including related parts and technology services, and working
capital related to the production of consumer goods destined to exportation, electricity
sector, export structures of bulk liquids, engineering projects, technological innovation
and investment projects for the creation of technologic and productive capacity, as well
as engineering and logistic infrastructure projects aimed at the construction of roads
and railways object of concession granted by the Federal Government, under the terms
established by the Brazilian Monetary Council and by the Central Bank of Brazil;
Financing transactions entered into with foreign borrowers.
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4. The rates herein indicated are applicable from January 22nd, 2015 onwards.
14Taxpayer and
Party Liable for
Tax Current Tax Rate4
the Collection of
the IOF
IOF/Exchange The taxpayer is the The general IOF/Exchange rate is 0.38% on the amount of the currency exchange trans-
entity executing the action, exception made to the situations provided in the Section 15-B of the Decree.
currency exchange 6,306/07. However, the executive branch may change the IOF/Exchange rates at any
transaction and the time, provided that the rate does not exceed 25%.
party liable for the Among the hypothesis which are not subject to the general 0.38% rate, we highlight the
collection of the following:
tax is the financial
Subject to 0% IOF/Exchange rate:
institution that will,
in practice, perform Currency exchange transactions carried out for the inflow of funds in connection
the transaction. with the payment of Brazilian exports;
Currency exchange transactions carried out by foreign international airline companies,
for the outflow of funds derived from their revenues originated in Brazil;
Currency exchange transactions related to the inflow of foreign currency for the
payment of expenses incurred in Brazil paid with credit cards issued abroad;
Currency exchange transactions related to the inflow and outflow of funds connected
to cross-border loans and financings to Brazilian borrowers with a minimum average
term exceeding 180 days;
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
Currency exchange transactions for the return of proceeds invested by foreign
investors in the financial and capital markets, dividends and interest on net
equity;
Currency exchange transactions contracted by foreign investors for the inflow
of proceeds, including through simultaneous operations, for investment in the
financial and capital markets;
Simultaneous currency exchange transactions for the inflow of funds to Brazil in
relation to the cancellation of depositary receipts, for the investment in shares tradable
in the stock exchange;
4. The rates herein indicated are applicable from January 22nd, 2015 onwards.
15IOF/Exchange The taxpayer is the Currency exchange transactions for the inflow and outflow of funds related to
entity executing the investments made by investment funds that invest in non-Brazilian markets in
currency exchange accordance with the rules set forth by the Brazilian Securities and Exchange
transaction and the Comission.
party liable for the
collection of the Subject to 6% IOF/Exchange rate:
tax is the financial
institution that will, Currency exchange transactions related to the inflow of funds to Brazil in
in practice, perform connection with cross-border loans and financings to Brazilian borrowers, with a
the transaction. minimum average term not exceeding 180 days.
Subject 6.38% IOF/Exchange rate:
Currency exchange transactions intended to comply with the duties of
international credit card managing companies, multiple banks or commercial
banks, while these institutions are acting as issuers of debt credit cards, in
connection with money withdrawals carried out by the card users outside Brazil.
Currency exchange transactions for the purchase of foreign currency in the form of
traveler checks and pre-paid international card, to be used for personal expenses in
international travels.
Subject to IOF/Exchange exemption:
Currency exchange transactions carried out for the payment of imported goods
IOF/Insurance The taxpayers are the The rate varies from 0% to 7.38% on the premium paid.
insured individual and
legal entities and the
The executive branch may change the IOF/Insurance rate at any time, provided that the
party liable to pay the
rate does not exceed 25%.
IOF is the insurance
company or the
financial institution
responsible for
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charging the premium.
16Taxpayer and
Party Liable for the
Tax Current Tax Rate4
Collection of the
IOF
IOF/Securities As a general rule, Currently, IOF/Securities is assessed on transactions consisting of the acquisition,
the taxpayer of assignment, repurchase or renewal of fixed-income investments or the redemption
IOF/Securities is of bonds and securities. The maximum rate of IOF/Securities payable in such
the purchaser, in cases is 1.0% per day and decreases with the length of the transaction, reaching
the hypothesis of 0% for transactions with maturities of at least 30 days. The Minister of Finance,
acquisition of bonds however, has the legal authority to increase the rate to a maximum of 1.5% per
or securities, and the day of the amount of the taxed transaction, during the period in which the investor
owner of the financial holds the securities, but only to the extent of the gain realized on the transaction
investments, in and only from the date of its increase or creation.
case of redemption,
Below we present some specific situations in which IOF/Securities applies at a 0% rate:
assignment and
renegotiation. On Up to June 13th, 2013, IOF/Securities was imposed at a 1% rate on the
its turn, the Decree notional adjusted value in the purchase, sale or maturity of financial
6,307/07 lists several derivative contracts the settlement of which is affected by foreign exchange
liable parties for each fluctuation, which individually results in an increase in the long currency
nature of transaction position or in a reduction in the short currency position. Currently, IOF/
(e.g.: institutions Securities is imposed at the rate of 0% in such transactions;
authorized to operate
in purchase and Transactions involving variable income, including those performed in the stock
sale transactions and future exchange or similar entity;
involving securities). Negotiation of shares of fixed income index investment funds in stock exchanges
or organized OTC;
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
Assignment of shares admitted in the Brazilian stock exchange, with the specific
purpose of backing the issuance of depositary receipts negotiated abroad.
IOF/Gold The taxpayers are 1% on the acquisition cost.
the institutions
authorized by the
Central Bank of
Brazil which perform
the first acquisition
of gold, financial
asset or exchange
instrument.
17
4. The rates herein indicated are applicable from January 22nd, 2015 onwards.criteria established by the legislation. The taxable basis and
CIDE – Contribution for
rates vary in accordance with the size, location, nature and use
Intervention on the Economic of the land. Based on these aspects, the ITR rates ranges from
Domain 0.03% to 20%. The taxpayer is the owner or possessor of the
The federal tax legislation establishes that payment for services real estate and the assessment of the ITR is made annually.
rendered by foreign entities to Brazilian residents involving
AFRMM – Tax on transportation
the supply of technical services, administrative assistance
and technical services are subject to the Contribution for
by water
Intervention on the Economic Domain (“CIDE”). The Freight Surcharge for the Renewal of the Merchant
Marine (“AFRMM”) is imposed on the freight value,
The CIDE is assessed based on the gross amount charged
defined as the compensation for water transport of any cargo
(i.e., the invoiced amount), without the deduction of the
discharged in a Brazilian port, including the remuneration
Withholding Income Tax (“WHT”) imposed on such
for the cargo transportation from port to port and all
payment. Differently from the WHT, the CIDE is due and
other expenses therein involved. The taxable event of the
payable by the Brazilian paying source and, consequently,
AFRMM is the beginning of the discharge of the vessel in
it is not subject to any withholding mechanism.
a Brazilian port.
As of January 1st, 2006, remittances for software licensing
are exempt from CIDE, provided that there is no transfer
INSS – Social security contributions
of technology (transfer of the source code). Social security contributions are federal taxes also managed
by RFB since 2008. The financing of the social security
In certain circumstances, the CIDE contribution rate
system in Brazil is made by means of contributions from
is reduced to 0% if the company paying the patent or
both employers and employees or independent workers.
trademark royalties of the service fees benefits from tax
incentives targeting at certain technology activities (e.g. The contribution due by the employee, or independent
semiconductors, digital TV, etc.). workers, must be withheld from the employee’s or
independent worker’s earnings paid by a Brazilian
CIDE may also be imposed on the import and
company and duly remitted to the RFB.
commercialization of specific products, such as fuel.
Concerning the social security contributions owed by the
ITR – RURAL REAL ESTATE PROPERTY company, they can be generally described as follows:
TAX
Brazilian Social Security Institute (“INSS”) contribution
The Tax on Rural Property (“ITR”) is imposed on the imposed at a 20% rate on the earnings paid or credited
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ownership or possession of rural real estate, characterized as to employees and independent workers. Some specific
such the estate located outside the urban zone, under specific activities are subject to an additional rate. According to
18a recently enacted legislation, a new systematic of INSS federal contributions other than the ones presented herein.
contribution was created, by means of which the legal
Additionally, the federal government is authorized by the
entities of certain sectors (e.g. furniture, shoes, retail of
Federal Constitution to create other taxes, such as social
textile, pharmaceutical products, retail business, among
contributions, compulsory loans and other fees related to
others) must collect the referred contribution at a 1%
the use of specific and dividable public service and police
or 2% rate (depending on the activities developed by
power, as well as improvement fees.
the taxpayer) on the gross revenues derived by such
entity (in substitution for the regular regime of INSS
contributions imposed at a 20% rate on the payroll). Mechanisms for the
Under this new regime, legal entities also engaged in Reimbursement and Offsetting of
activities not subject to the substitute social contribution the Federal Tax Credits
(secondary activities) in an amount exceeding 5% of its
total gross revenues will assess the INSS contribution
Reimbursement
based on the payroll, but at a reduced rate resulting from
the percentage ratio of the secondary activities and the The reimbursement of federal tax credits5 can be requested
total gross revenues. However, legal entities engaged in the following hypothesis:
in secondary activities will be excluded from the new
Overpayment or undue payment;
regime if these activities generate 95% or more of the
legal entity’s total gross revenue; Mistakes:
In the identification of the taxpayer,
Workers’ Compensation Insurance (“GIll RAT”)
imposed at the rate of 1%, 2% or 3% on the payroll (the In the applicable tax rate, or
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
applicable rate varies depending on the level of accident
risk related to the company’s business activities and may In the calculation of the due tax amount or
be decreased up to 50% or increased up to 100%); and verification of any document related to the
Contributions collected by the INSS and attributed to payment; and
other official agencies at aggregate rates of up to 5.8%, Reform, annulment, revocation or termination of
depending on the company’s activities. condemnatory decision.
Other taxes The reimbursement request must be presented, as a general
rule, electronically, via the procedure called PER/DCOMP
There are also several other federal contributions applicable
(or in written form based on a specific format provided by
only to very specific professional or economic categories.
the applicable tax law in specific cases or in case it is not
Therefore, some specific activities may be subject to other
possible to adopt the PER/DCOMP).
5. Such credits must be related to taxes administered by the RFB. 19After the reimbursement request is accepted by RFB, the fulfill one of the conditions explained in the previous topic), is
full amount of the credit is made available to the taxpayer able to request the offsetting of such credit against its own tax
which may opt to: liabilities currently due or those debts which are still maturing.6
The offsetting request is also made via the electronic
Have the amount credited in its bank account (if there
PER/DCOMP system (or via a specific form in case the
are no outstanding debts of the company); or
electronic procedure is not possible).
Use the recognized amount to offset other federal taxes
After the offsetting request is accepted by the RFB, the
due by the taxpayer.
liabilities which were offset against the credits will be dully
settled. On the other hand, if the offsetting request is not
Although this seems a simple procedure, the recognition accepted, penalties and interest may apply.
of the right to reimburse the amount of credits requested
is complex and time consuming. Additionally, from a In any case, the taxpayer may file the proper administrative
practical perspective, the effective receipt of a bank appeals against decisions that do not accept the offsetting/
deposit in the amount of the credits is hardly an option. reimbursement requests.
Offsetting Finally, it is important to highlight that the relevant rulings
provide for several other conditions, restrictions and procedures
Pursuant to the applicable legislation, the taxpayer who to be observed as regards the reimbursement or offsetting of
assesses a federal tax credit, which may be reimbursed (i.e. federal tax credits or offsetting of federal tax credits.
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20
6. Such credits must be related to taxes administered by the RFB.03.
state taxes
The ICMS is also imposed on the import of goods or of
ICMS – State value-added tax
communication services, including, in the case of goods,
The Tax on the Distribution of Goods and on Interstate those acquired for the importer’s fixed assets, such as
and Intermunicipal Transportation and Communication machinery and equipment. The taxable basis, in this
Services (“ICMS”) is similar to a value-added tax and situation, is the customs value, plus II, IPI, PIS/COFINS
is imposed on transactions involving the sales and and the ICMS itself assessed on a gross-up basis. In such
other commercial operations with goods (including event, in general, the tax paid by the importer may be offset
electricity), the rendering of any type of intermunicipal against the tax due in future taxable transactions.
or interstate transport services and on communication
The taxable basis of the ICMS due on the sale of products is,
services. Its main aspects are regulated by the National
as a rule, the value of the transaction, added by insurance,
Complementary Law 87/96, which must be observed by
conditional discounts and freight, if charged separately and
all Brazilian States.
rendered by the seller or on its behalf, always calculated
As expressly established by the Federal Constitution, the on a gross-up basis. In the rendering of interstate and
ICMS is a non-cumulative tax, which means that the ICMS intermunicipal transportation and communication services,
paid in each transaction may be offset against the tax due the ICMS is usually imposed on the price of the service.
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
on upcoming transactions or service renderings.
For domestic transactions and services carried out within the
Regarding the credit mechanism for the acquisition of same Brazilian State, the respective tax rates will be determined
inputs or products for resale, as a rule, the tax may be by each State. The rate established for intrastate transactions is
immediately appropriated by the taxpayer. On its turn, also applicable to the sale of products to non-taxpayers, even if
the credit related to the acquisition of fixed assets is, as a they are located in a state different from the one of the seller. The
general rule, limited to the proportion of 1/48 per month, general tax rate applicable to domestic transactions may be up to
i.e., the credits related to the acquisition of fixed assets, 19%, depending on the State where the transaction takes place.
considered as such the machinery, equipment and vehicles For certain products and services, such as perfumes, cigarettes
directly used in the company’s activities, will only be fully and others, the states often establish a higher tax rate. On interstate
recovered after 4 years of their acquisition. There are, transactions carried out between taxpayers, the rate is established
however, exceptions to such rule in the state legislations. by the Federal Senate and may be 4%, 7% or 12%.
21The 4% rate was recently established in order to reduce between the interstate rate applied to the transaction and
the effects of the tax war between Brazilian States, the internal rate established by the respective state of the
which usually grant ICMS benefits on the sales of goods. acquirer location.
Therefore, the Federal Senate decided to reduce the
The ICMS is not imposed on the export of products or services.
possible basis for the ICMS benefits granted by reducing
the interstate transactions’ rate to 4%. As per the new The ICMS may also be imposed under a tax substitution
legislation, the 4% rate applies to all interstate transactions regime, by means of which one entity participant of the
except for the following situations: commercialization chain is elected to collect the ICMS
imposed on the whole chain regarding transactions to be
Transactions with products in which the amount of carried out in the same State. As a rule, the tax substitute,
imported inputs does not surpass 40% (according to the
which is liable for the collection of the ICMS for the whole
calculation criteria determined by the relevant rulings);
commercialization chain, is the manufacturer or importer.
If the subsequent player in the chain does not perform
Transactions with any imported products with no transactions within the State, it is allowed to recover the
similar manufactured in Brazil, listed by the foreign ICMS that was previously collected on its behalf.
trade federal department;
ITCMD – Gift and Inheritance tax
Transactions with imported products manufactured in Under the Federal Constitution, States may impose the
accordance with the Basic Productive Process established Gift and Inheritance Tax (“ITCMD”) on donations and
for some regions and/or specific products; and inheritances of any assets or rights. Therefore, the ITCMD
is a State tax that comprises two different taxable events:
Transactions with imported natural gas. donations and inheritances.
The legislation of each State of the Brazilian Federation
For the transactions to which the 4% rate does not apply, shall regulate the imposition of the ITCMD, through local
the ICMS rate may be 7% on the sale of products from laws. Notwithstanding this, the general taxation limits
companies located in south and southeast states, except imposed by the Federal Constitution shall be observed.
for Espírito Santo, to companies located in the North,
The Federal Constitution provided a situs principle that
Northeast and Central-West and Espírito Santo, or 12%
for the remaining interstate transactions. shall govern the Brazilian States imposition activity
of the ITCMD on gifts or inheritance involving real
If a taxpayer acquires fixed assets and consumable goods estate: the State where the real estate is located is
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on an interstate transaction, as a rule, it must also collect entitled to impose the ITCMD on transfer transactions
the differential rate, which corresponds to the difference implemented by means of a donation or an inheritance.
22With respect to movable property, the imposition power
IPVA – VEHICLES PROPERTY TAX
is attributed to:
The Vehicles Property Tax (“IPVA”) is imposed on the
The State where the probate is processed, in relation to
ownership of motor vehicles. The taxpayer is the owner
inheritances; and
of the vehicle and the taxable basis is, as a general rule,
the vehicle’s market value, being the assessment made
The State where the donor is domiciled, in case of annually by tax authorities. The IPVA is also due when a
donations. new vehicle is acquired, case in which the taxable basis is
the value indicated in the fiscal document of acquisition,
The tax rates of the ITCMD vary in accordance to the laws of the proportional to the remaining months of the year of
relevant State, though a maximum limit of 8% shall be observed. acquisition. The rates may vary in accordance with the
type or use of the vehicle and are established by each State.
The ITCMD is generally imposed on the market value of
the asset or right donated or transferred as a bequest upon Other taxes
death of the owner. Special rules normally apply to define
the value of quotas or shares of legal entities, depending Additionally, the state government is authorized by the
on the legislation of each State concerned. The taxable Federal Constitution to create other fees related to the use
basis shall be determined on the date of the donation or on of specific and dividable public services and police power,
the date on which the probate process commences. as well as improvement fees.
HOW TO MANAGE CORPORATE TAXES IN BRAZIL
2304.
Municipal taxes
The taxable basis and rates vary in accordance with the size,
ISS – Tax on services
location and use of the real estate. The taxpayer is the owner
The Tax on Services (“ISS”) is imposed on the rendering or possessor of the urban real estate and the assessment of the
of services of any nature, except for communication and IPTU is made annually, as a rule.
intermunicipal and interstate transportation services, which
are subject to ICMS. The import of services is also subject
ITBI – REAL ESTATE TRANSFER TAX
to the ISS. Its main aspects are regulated by the National The Real Estate Transfer Tax (“ITBI”) is imposed on the
Complementary Law 116/03, which must be observed by all inter vivos transfer of real estate, as well as on the transfer or
the Brazilian Municipalities. This federal law brings a list of assignment of in rem rights regarding real estate, except for
services that can be taxed by the municipalities. The ISS rate in rem guarantee rights. The Federal Constitution expressly
varies depending on the municipality in favor of which the establishes that ITBI is neither imposed on the transfer of
tax is due as well as on the nature of the service, being the estate or rights thereto in the case of capital contributions,
minimum and maximum tax rates 2% and 5%, respectively. nor on the transfer of real estates or rights resulting from
The ISS taxable basis is the price of the service. The export of a merger, consolidation, spin-off or liquidation, unless the
services is not subject to ISS, except if the result of the service legal entity receiving the asset or rights is engaged in the
is verified in Brazil. As a general rule, ISS is collected in favor purchase and sale of real estate properties or rights, the
of the municipality in which the service provider is located. rental or leasing of real estate. The taxable basis is, as a
However, the national Law that rules ISS established that for rule, the transfer value, and the rate is established by each
some services expressly indicated, such as civil construction municipality (up to the rate of 2%). The taxpayer may be
works, the tax must be collected in favor of the municipality any of the parties envolved in the transaction, as established
where the services are effectively rendered. by each municipality, and the tax must be collected to the
municipality where the real estate is located.
IPTU – URBAN REAL ESTATE
PROPERTY TAX Other taxes
The Property Tax on Urban Real Estate (“IPTU”) is a municipal Additionally, the municipal government is authorized
tax imposed on the ownership or possession of urban real estate, by the Federal Constitution to create other fees related
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characterized as such the real estate located in the urban area, to the use of specific and dividable public services
under specific criteria established by the national legislation. and police power, as well as improvement fees.
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