The 1988 Federal Constitution has conferred taxing authority to the Federal Government, the States and Municipalities. Tax law principles in the Federal Constitution decree:
(Strict lawfulness principle);
(No same tax period taxation principle).
Brazilian companies may choose to be taxed on:
At the beginning of each calendar year, the taxpayer makes their choice and the first tax payment, IRPJ, and CSLL must be paid by the last business day of the following month.
Corporate taxable income is taxable at 15% with a surtax of 10% on taxable income over R$240 thousand per year.
CSLL is levied on entities subject to the IRPJ to finance the Brazilian federal social security system. The CSLL rate is 15% for financial institutions and 9% for other institutions.
In 2006, all the federal agencies (Federal, State, Federal District and Municipalities) created through a Complementary Law 123/2006 a simple method of taxation for micro and small companies called Simples Nacional.
Simples Nacional companies must:
For purposes of opting and staying in the Simples Nacional, the revenue for each calendar year in the domestic market and export goods or services abroad is limited to R$4,800,000.00 starting in January 2018.
The general rule for determining the tax rate is to use the total accumulated gross revenue within twelve months prior to the assessment period (RBT12), and identifying in the Annexes of Complementary Law No. 123, 2006, the applicable rate according to the income range. The rate varies from 4% to 17.42%.
Profits may be remitted abroad without limit, up to the level of registered foreign capital and available retained earnings, although a corporation is required to allocate 5% of its annual profit as legal reserve. Profits/dividends distributed to non-resident beneficiaries related to periods beginning on or after January 1, 1996, are not subject to WHT.
Foreigners holding temporary visas with no local employment agreement are treated as non-residents during the first 183 days (consecutive or not) of their stay and are liable to Brazilian income tax of 25% withheld at source on their Brazilian source income only, and do not have to file a tax return. From the 184th day of residence onward, or earlier if a temporary visa is converted into a permanent visa, they are considered resident for tax purposes.
Foreigners arriving in Brazil on permanent or temporary visas with a local employment agreement are considered residents and are taxed on worldwide income from the date of their arrival.
Individual taxpayers, including resident foreigners, are taxed on worldwide income at progressive rates, from 7.5% to 27.5%.
An individual who receives personal income in any month from a source other than an employer must prepare a compulsory monthly tax computation (carnê leão) and pay any tax due by the last working day of the following month.
The rules for calculating the Capital
Gains of individuals are established by Law Decree 3000/1999, with changes of Provisional Measure (MP) No. 252.
The capital gain must be determined by the individual who, in relation to assets, rights or equity interests acquired in local currency, in the month of the calendar year that:
property or rights of any kind, such as house, apartment, land, rural property, room or shop, vehicle, aircraft, jewellery, art object, antiques, copyright, and patent of invention, share or capital share, shareholding, unless traded on stock exchanges in Brazil;
alienation term/provision made in prior years, of which the taxation has been deferred;
Made, when compared to corporations, sale of goods, property or rights not covered by the equivalent.
Exemptions from capital gain tax apply when:
Other specific cases must be analysed.
The tax rate for all types of Capital Gain is 15% (25%, if the beneficiary is in a lowtax jurisdiction, as defined by Brazilian legislation).
Municipal Real Property Tax, IPTU (Imposto sobre a Propriedade Territorial Urbana), is levied on the ownership of real property. The amount to be paid will be calculated based on the value of the property. IPTU is levied annually based on the fair market value of property in urban areas, at rates generally ranging from 0.2% to 5%, according to location and use of the property.
Property Transfer Tax, ITBI (Imposto sobre Transmissão de Bens Imóveis), is levied on the transfer of title to real properties and related rights. It goes up to 8% according to municipal legislation.
Rural property tax, ITR (Imposto sobre a Propriedade Territorial Rural), is an annual federal property tax levied on the ownership or possession of real estate located outside urban perimeters. The tax basis varies according to the value, size and location of the real estate, and tax rates vary in accordance with land-use. The tax rate normally ranges from 0.03% to 20% per annum, depending on the stage of use. Small rural properties are exempt, if the owner or the owner’s family cultivates the land.
Value added tax
ICMS is a state tax and is levied on sales or any other ordinary physical or economic circulation of goods. Because it is a state tax the rates vary from 7% to 25%, depending on the acquirer location.
IPI tax is levied on manufacturer’s sales and imports, and sales carried out by importers. Depending on the industry, it is considered a VAT-type tax and the amount paid on inputs is recovered and offset against the output debits. The basis is sales price when a product leaves the industrial establishment, or upon import, and the rates range from 0% to 330% depending on the product classification. Typically, the average rate for the IPI is 15%.
This is based on gross revenues, and rates vary from 0.65% to 1.65% according to the company tax methodology, (see corporation tax).
This is based on gross revenues, and rates vary from 3% to 7.6% according to the company tax methodology, (see corporation tax).
Municipal service tax, ISS (Imposto sobre Serviços de Qualquer Natureza), is a noncumulative tax levied on the rendering of certain services – those included in a federal list of taxable services. Rates vary from 2% to 5%. Imported services are also subject to ISS taxation regardless of whether the service is performed abroad. Exported services are tax-exempt, provided certain conditions are met.
The import duty is levied upon the nationalization of the goods. Rates vary according to the NCM code of each product, which is based on the Harmonized System codes (HS Codes), usually from 0% to 35%. Imported goods are also subject to the Additional Freight Charge for Renovation of the Merchant Navy (“AFRMM”) levied on all imports transported via maritime freight.
Currently most products are taxed at a zero rate.
Based on the value of assets or rights transferred by donation or legal inheritance and rates vary from 2% to 6% according to state law.
IPVA is a state tax levied on the ownership of motorized vehicles in general (cars, trucks, boats, airplanes etc.). The tax amount is based on vehicle type and value and varies according to state law.
In general, Brazil’s double-tax treaties cover only corporate and individual income tax and remittance taxes, and do not affect the payment of capital gains tax (i.e. the treaties generally do not provide relief as they generally state that capital gains may be taxable in both countries). Each individual double-tax treaty should be consulted to determine the method of eliminating double taxation, tax credit or exemption.
Countries with tax treaties as of 2016:
South Africa; Argentina; Austria; Belgium;
Canada; Chile; China; Korea; Denmark;
Equator; Spain; Philippines; Finland;
France; Hungary; India; Israel; Italy; Japan;
Luxemburg; Mexico; Norway; Netherlands;
Peru; Portugal; Slovakia; Czech Republic; Sweden; Trinidad and Tobago (2014); Turkey (2013); Ukraine; Venezuela (2014).
Even though Brazil has adopted the BEPs Project, the only legal act enacted regarding one of the BEPS’ action was Provisional Measure No. 685/2015. This has created the obligation to file a return with information about operations that result in suppression, decrease, or deferment of taxes. However, Law No. 13,202/2015, which is the conversion into Law of Provisional Measure No. 685/2015, does not provide such ancillary obligations.
On August 25, 2015, the treaty entered into by Brazil and the USA to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (“FATCA”), was enacted
(having been signed on September 23, 2014). The sole purpose of the agreement is to identify and combat the tax evasion, especially of US citizens and companies. To achieve this, it became mandatory for financial institutions to submit an annual return.
According to double taxation treaties signed by Brazil, the maximum rates applied for Dividends vary from 10% to 15%, Interest vary from 10% to 15% and Royalties vary from 10% to 25%.
Transfer pricing rules
The Brazilian legislation about the transfer pricing is relatively new (since 1997) and the law has been changed several times. As Brazil is not a member country of OCDE, the methodologies to be applied are determined by local legislation.
According to the local regulations, the following will be considered a related party to the legal entity domiciled in Brazil: its mother company when domiciled abroad; its branch or subsidiary, domiciled abroad; a legal entity domiciled abroad who is characterized as its subsidiary or affiliate; and some others.
Law prescribes methods to ensure that the prices used to determine the actual, presumed or arbitrated profit and the tax basis of social contribution on net income, are, as much as possible, market prices.
Rules regarding importation of goods and services:
Price (PIC) – equivalent of CUP method – Analysis of the TP based on the weighted arithmetic mean (parameter price) of the prices of goods or services identical or similar, calculated in the Brazilian market or in other countries, in transactions between unrelated parties;
Profit (CPL) – equivalent of CP method – This Method requires the company to obtain a fixed profit margin of 20% of the weighted average cost in the production of good or services;
Rules regarding exportation of goods and services:
Production More Taxes and Income (CAP) – equivalent of CP method – defined as the weighted average cost of acquisition or production increased for taxes and duties (imposed by Brazil) plus a profit margin of 15%;
In case of an inspection, the company must provide all the supporting documents used to calculate the transfer price. If the required documents cannot be presented, or are insufficient or unsuitable to justify the price, the Fiscal Auditors of the IRS in charge of audit may determine the transfer price amount themselves, applying one of the methods referred to in SRF No. 243/2002.