Brazil Corporate Taxation


Resident based companies are taxed on the idea of worldwide income. A far off company has got to pay Brazilian taxation as long as it carries out certain sales activities within the country with the assistance of some agents or representatives that are domiciled within the country which have the legal authority to bind the foreign seller before the domestic purchaser, or through a domestic branch of the foreign seller. A representative acting as an agent, with the ultimate transaction being concluded by the non-resident company abroad, won’t produce a legal presence in Brazil.

Contents

  • Tax Rate
  • Taxable Income
  • Value Added Tax (VAT)
  • Brazil-India treaty
  • Reference

Tax Rate

Corporate tax, (Imposto de Renda de Pessoa Jurídica)or IRPJ, is imposed on the entity with taxable profits at the rate of 15%. Additionally to the IRPJ, a surtax is levied on taxable income which is more than BRL 240,000 annually by 10 %. The social contribution on the profits or Conxolidated Separate Loss Limitation (CSLL), is levied on the entities subject to the IRPJ so on finance the Brazilian Federal society social organisation.

Taxable Income

Operating profit also can be understood as gross operating receipt, less the value of products sold or services rendered; commercial, administrative and operating expenses, and other charges, reserves and loose authorised by the law. Dividends received from other Brazilian companies and income from premiums on the issuance of latest shares are not included in the taxable income. Brazilian companies may elect to be taxed on actual or deemed income. The Lucro real method is established on actual annual or quarterly taxable income, which means Lucro Presumino method is predicated on estimated or deemed taxable income. The election is formed annually and documented by the primary tax from the paid at the beginning of the year. [1]

Value Added Tax (VAT)

The Brazilian indirect tax system comprises three key indirect taxes:

  • VAT on Sales and certain Services (ICMS)
  • Excise Tax (IPI), and
  • Service Tax (ISS),

which are state, federal, and municipal taxes, respectively.

Value added tax on sales and services (ICMS)

ICMS ( Imposto sobre Circulação de Mercadorias e Serviços ) is a sales tax imposed on the distribution of the electric power, merchandise, intermunicipal transportation services, rendering of interstate and communications, even when the rendering of the services and the translation starts in another some other country. It is not an increasing tax. The tax is only cumulative when the price of the product rises in each part of the circulative process. The credits are calculated on the basis of the raw materials entering the taxpayer’s premises and the debits are  calculated when the final products exit the establishment. The taxpayers are not allowed to account the credits on materials purchased that will be used on goods that will not be taxable when they exit the company.

 VAT is collected at an 18% rate in the state of São Paulo. Certain products can be charged a higher rate (usually 25%) or a lower rate (12%). The internal ICMS rates may be different in each state of Brazil. Usually, the ICMS rates range between 17% to 20% for the most cases, but higher and lower rates may/can be applied as well.

The following chart shows the special rates applied in the interstate sales. On all interstate sales of imported goods, a 4% rate is applied. 

From ( Shipper)To ( addressee )Rate %
South and SoutheastSouth and South East12
North, Northeast, MidwestAny Braziallian State12
South and Southeast*Nort, Northeast and Midwest *7
* Including the state of Espírito Santo.

Excise Tax (IPI)

IPI ( Imposto sobre Produtos Industrializados)  is a Federal tax which is paid on behalf of the customers by the manufacturers at the time of the sale, either to the other manufacturer ( who will continue the manufacturing process) or to the retailer (sells to the end user). Some exemptions are given to the goods which are considered essential ( basic need ) for the economy of the country. The rates are interpreted by the traffic code of the product ( mostly between 5%-15% but in certain cases over 300% ). This simply means that the essential goods will have lower tax. IPI is due on a monthly basis and is imposed on imports of goods, while exports are not subject to IPI.

Municipal service Tax (ISS)

 ISS ( Imposto Sobre Serviços ) is a municipal service tax imposed on the provision of the services as listed in Supplementary Law 116/2003. It is based on Cumulative basis and the rate may vary between 2% to 5% ( which depends on the type of the services). It is not imposed on the export of the goods and services. [2]

Brazil India Treaty

The update of the Double Taxation Avoidance Convention (DTAC) provisions to international standards, the amending protocol between India and the Federative Republic of Brazil will eliminate and prevent the double taxation. This will provide taxing rights between contracting states through DTAC and will provide tax certainty to investors and businesses of both countries. The amending protocol will augment the flow of investment through lowering of tax rates in source states on royalties, fees for technical services and interests. [3]

Reference

  1. http://www.itamaraty.gov.br/pt-BR/busca?searchword=corporate%20tax&ordering=newest&searchphrase=all
  2. http://www.brazil.gov.br/trade-and-invest/doing-business/basic-information-to-know-before-starting-a-business-in-brazil/tax-incentives-and-exemptions
  3. https://www.incometaxindia.gov.in/pages/international-taxation/dtaa.aspx

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