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Saturday, August 18, 2018

Tax System in Brazil

As regards the tax laws and the Brazilian fiscal rules, they are applied on federal, state and local level. For the foreign companies that have decided to invest their activities and capitals in Brazil, there aren’t specific tax impositions, so takes are applies almost mainly to their Brazilian companies.

The tax system may vary in a sensible way from State to State. The Brazilian system is based on the "civil law" and the tax system on the federal tax code dating to 1966 and on the Federal Constitution of 1988. The tax system is ruled by "RFB" (Receita Federal do Brasil), that is part of the Ministry of Economy. In the field of the international taxing Brazil has signed agreements in order to avoid the double impositions with different Countries. The agreements imply the possibilities of credit/compensation of the paid tax and the percentages to consider, to which it is advisable to analyse the possibilities of international management of the flow of capital/investment on the side of multinationals.

In Brazil the main federal taxes are:

  • IRPJ – income taxes.
  • CSLL – the social contributions to an enterprise on net income.
  • IRRF – reduction on the income.
  • IPI – excise duty.
  • II – tax on the import.
  • PIS – tax on the programme of social integration - (PIS).
  • COFINS – social contributions on the income.
  • IOF – a tax on financial operations.
  • CIDE – contributions to land property.
  • IE – tax on the export.
  • ITR – tax on the rural property.

The main state taxes are:

  • ICMS – tax on the added value of goods and services.
  • ITCMS – tax on successions and donations.
  • IPVA – tax on cars’ property.

The main municipal taxes are:

  • ISS – tax on services.
  • IPTU e ITBI – taxes on properties.

In Brazil residing people are taxed according to the idea of "World Wide Taxation Principle", that is independent on the source of origin; in Brazil are taxed all the incomes produced in the country.

The income is stated in Brazil proportionally to the participation share. Non-residing entrepreneurs are taxed on the incomes of Brazilian origin or incomes directly related as such, so also if their branch offices, representative offices and local agents operating in Brazil. A company is resident if it has been established or registered according to the Brazilian Law regarding companies, and it is domiciled in the Brazilian territory with its firm organization.

CHART OF THE MAIN TAXES

TAXES

%

IMPORT TAX

RANGE %

Income taxes

34

WHT

15-25

ICMS – VAT to the State

7-12-18

ISS –Municipal tax

2-5

IPI – VAT to the Government

Fluctuating

IOF

0,38-6

PIS and COFINS – Gross turnover Tax

9.25 or 3.25

CIDE

10

TAXES INCIDENT ON THE INCOME

On federal scale, the "Tax Incident on the Income" is charged on the physical persons "IRPF" both domestic or foreign or on the corporate bodies  "IRPJ" in function of the gained capital received in Brazil or abroad. As concerns the income tax for physical persons, laws expect that people residing in Brazil are subject to the imposition of all the income they declare, also abroad, (following those procedure agreed on the treaties to avoid a double imposition).

The current rates consider:

  • Exemption for monthly incomes up to 1.164,00 Reias.
  • 15% rate for monthly incomes , more than 164,00 Reias up to 2.326,00 Reias.
  • 27,5% rate for monthly incomes more than 2.326,00 Reias.

Laws provide a fix allowance in the different level ranges of the taxable income thus warranting a progressive tax imposition. Physical persons are also subject to social contributions, but not on the contribution to the National health service. Each state does not impose taxes on the incomes of the physical persons, but they can tax successions or donations, as well as municipalities can impose a tax on transfers and services.

The total income on the physical person is thus split into two main big taxable parts:

  • Income from capital gain.
  • Income from other sources.

Physical persons as above mentioned are taxed following the idea of "World Wide Income", that is on all the incomes everywhere received, and also in case the assets may be increased without any correspondence with income-tax returns. Non residing people are exclusively taxed at the source for incomes gained in Brazil; the source of such incomes is established with reference to the place of the sum distributor, independently on the place the task may be carried out. If for kind of income the rates are not specifically provided , it is possible to deduct an amount corresponding to 15%, unless the payee lives in country subject to low taxation: in this case the income is subject to 25% rate.

The tax on the income of corporate bodies is applied on the accounting income obtained by applying the book keeping criteria of Brazilian accountancy. The Brazilian law recognizes four main calculation systems for the income taxes of the companies:

  • The system of the real profit.
  • The system of the estimated profit.
  • The profit as stated by tax authorities.
  • The simplified system of federal tax collection.

To the income differently calculated is applied the 15% tax rate with a 10% surtax on the exceeding sum of R$ 240.000.

The companies that work in Brazil are expected to pay  "CSSL" (Social contribution on Gross Profit). The taxable basis for such a contribution is calculated on the gross profits declared for the income tax. The calculation basis of  "CSSL" is subject to the criterion of universality, that is the foreign incomes and profits of Brazilian companies contribute to build up the taxable basis of  "CSSL". "CSSL" is not deducible with the purpose of calculation the income taxes.

TAXES INCIDENT ON THE ACTIVITIES

As in every economic field, in Brazil too there may be taxes incident on the company activities:

1) IPI – Tax on the goods of Industrial Production: it charges production processes of goods or their import.

Turnover thresholds are not provided. Every person that performs important activities aimed at "IPI" must register in the "IPI" taxpayers’ list before starting its own activity. "IPI" tax is applied with changeable rates from 0% to 330% on the total amount of gross amount due for the operation.

The rate varies according to the goods classification as is listed in "IPI" and "Tariff Table". Such a tariff, at the moment, contains 9.278 different product codes;  it uses the same classification of the Brazilian External Tariff Code (TEC or BTEC). The rate level changes in function of the importance of a product. Exemptions from the tax are provided and also reductions on the taxable basis (that mean a real lower tax) and, moreover, tax postponements or suspension procedures of the  tax amount due. The tax is applied in the product delivering or shipment stage. Yet, in case of anticipated payment, for the whole amount due or part of it, the tax payment is expected in that prior moment.

Concessional measures are provided, in case the goods shipment regards:

  • Goods export.
  • Goods sale to a trading company.
  • Goods sale within a plant expansion plan.

These incentives consist in exemptions on in help supplying in shape of tax credits granting.

2) ICMS – Tax on Goods Circulation and on Service supply: the "ICMS" tax is similar to VAT, applied on regional scale. "ICMS" tax accounts on all the stages of commercial transaction and shipment of goods. The same rate is the same for all the kinds of products but presents also remarkable differences from one region to the other. the average rate is 17,5%.

3) ISS – Tax on Services: the tax on services is a municipal tax applied on every service supplied by a corporate or a free professional man. The rate varies from 0,25% to 5%, according to the nature of the service.

4) IOF – Tax on Financial Operations. The tax on financial operations is a federal tax due for the following activities:

  • Credit operation supplied by financial institutes.
  • Currency exchange operations.
  • operations on movable values; in case of interventions of organizations that are allowed to operate in the Securities and values market.
  • Mortgages.

The IOF rate varies in function of the nature of the operation and is subject to frequent changes.

5) CIDE – Contribution of Intervention in the Economic Domain: in 2000  a new type of contribution was introduced to be applied to the Brazilian corporate bodies that run activities related to technogical field, technical services and assistance, administrative services. Such a contribution burdens on every type of payment abroad with a 10% fixed rate.

A case study service and tax counselling aimed at finding the best solutions for every customer in tax matters, by selecting the business methods, the company organizations and the markets where it may be possible to reduce the tax burden. Possibilities of personalised studies according to the specific fields of activities and on the basis of the different local tax rules.

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