Value-Added Taxes in Brazil
Know more about Value added taxes in Brazil
Profit participation contribution (PIS) and social security financing contribution (COFINS)
PIS and COFINS are federal taxes imposed monthly on gross revenue earned by legal entities. PIS is a mandatory employer contribution to an employee savings initiative and COFINS is a contribution to finance the social security system. The calculation method is generally non-cumulative, under which PIS and COFINS are levied on gross revenue at 1.65% and 7.6%, respectively, with deductions of input tax credits for expenses strictly connected to the company’s business and prescribed by the regulating laws.
Other calculation methods and special schemes may apply to certain industries and type of revenue. If a company is paying corporate income tax based on a deemed taxable income regime, i.e. under the Lucro Presumido system, the rates are reduced to 0.65% and 3.0%, respectively, and the company is not entitled to input tax credits (cumulative taxation).
PIS and COFINS are due on importations of goods and services from abroad (i.e. PIS-Import and COFINS-Import). The applicable rates are also 1.65% and 7.6%, and the amount paid is usually recoverable as input tax credits if the taxpayer assesses PIS and COFINS under the regular non-cumulative regime to the extent certain conditions are met. The export of goods and services are exempt provided funds effectively enter the country.
Federal VAT (IPI)
The IPI is a federal excise tax levied on manufacturer’s sales and imports and sales carried out by importers. As a VAT-type tax, the amount paid on imports and other taxed inputs are usually recoverable as tax credits to be offset against company’s IPI output debits. The tax rates range from 0% to 330% depending on the type of goods.
State VAT (ICMS Impostos Sobre Circulação de Mercadorias e Prestação de Serviços)
ICMS is a VAT levied by the Brazilian states on the circulation of goods and the provision of interstate and inter-municipal transportation and communications services. The tax applies even when a transaction and the provision of services commence in another country. A non-cumulative tax, ICMS is collected by most states at the rate of 17%, except for São Paulo and Minas Gerais, whose tax rates are 18%. There are also interstate rates of 12%, 7% and 4%, depending on the location of the recipient and nature of the transaction.
While there is no sales tax per se in Brazil, 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. While there are some exemptions (mainly pertaining to goods bound for exportation, raw minerals and interstate transmission of electricity and fuels), the only exemption that really impacts consumers is an exemption on newspapers, magazines and books.
Service tax (ISS Imposto Sobre Serviços)
The tax on services or ISS, a municipal tax, is imposed on the supply of services, other than services subject to ICMS. The list of relevant services is found in Complementary Law. The taxable base of ISS is the price of the service rendered. ISS is generally levied by the municipality in which the company that provides the service is established, although in exceptional cases, ISS may be levied by the municipality where the services are performed. ISS rates vary between 2% and 5%, depending on the municipality and the type of service. The importation of services is also subject to ISS, whilst exportations may be exempt if the result of the supply is exclusively found abroad. As a cumulative tax, ISS is not recoverable, i.e. no input tax credits are available stamp.
Tax on financial operations (IOF)
The IOF applies to various types of transactions, including loans, insurance policies and short-term money market applications. The rate is 0.0041% per day for credit transactions within Brazil, with an additional surtax of 0.38% on all credit transactions. IOF is also levied at the rate of 0.38% on foreign exchange (the acquisition or sale of foreign currency). Certain exceptions apply. Specific IOF rates also apply to portfolio investments under Resolution 2,689/00 when investments are made through the Brazilian financial and capital market.
In exchange transactions for the compliance with obligations from credit card or commercial or multiple banks as credit card issuers arising from purchase of goods and services from abroad made by its users: 6.38%.
Motor Vehicle Tax (IPVA – Imposto Sobre a Propriedade de Veículos Automotores)
All registered motor vehicles are subject to this yearly tax. The exact rate is highly variable depending upon the make, age and current market value of the vehicle. The IPVA tax on most average- to lower-priced newer cars will run well over R$ 1,000.00. Most states mail the bill in January and allow a discount if paid by a certain date as well as allowing monthly payments over the year.
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