Indirect tax - Brazil

Indirect taxes in Brazil are levied at a federal, state and municipal level. The principal indirect taxes levied are:

Federal
IPI (Federal Excise Tax)

IPI is a federal tax on transactions involving manufactured goods. It must be paid either when manufactured products leave the industrial establishment or in the importation of goods. Export transactions with goods are exempt from IPI.

When manufactured products are sold between producers, IPI is imposed. Nevertheless, the subsequent manufacturer is entitled to input a tax credit derived from acquisition of goods to be submitted to industrialization process. The credit is normally indicated in the tax invoice of the goods acquired.

The tax rates vary depending on the type of product manufactured or imported and are levied ad valorem based on the Table of Excise Tax Levy (TIPI). Certain exemptions exist for goods considered to be a basic necessity for the country’s economy. For example, the IPI rate levied on cigarettes is 300%, while the rate levied on soap is zero. It must be noted that rates can be modified at any time by an Act of the Chief of the Brazilian Executive Government. The act is effective from the moment of its publication.

PIS and COFINS (social contributions)

PIS and COFINS are social contributions charged on the monthly gross revenues of Brazilian companies calculated through a ‘cumulative regime’ and a ‘non-cumulative regime’:

• non-cumulative regime: COFINS is charged at 7.6% and PIS is charged at 1.65% (therefore a combined rate of 9.25%). Companies are granted a tax credit calculated on the acquisition of inputs and on certain expenses such as raw materials of goods and services. This system ensures that the tax is applied only once on the final value of each transaction. There are also different rates for specific activities determined by law. However, please note that the concept of ‘input’ is a grey area and the Brazilian Tax Authorities have been known to challenge companies for utilizing certain credits
• cumulative regime: COFINS is charged at 3% and PIS is charged at 0.65% (therefore a combined rate of 3.65%). Credits are not permitted which makes the taxes cumulative throughout the supply chain (financial entities are subject to a different cumulative system). Companies who elect
  the Estimated Profit Method are subject to the cumulative regime
• importation of goods: PIS and COFINS are also due on the customs clearance of goods at the rates of 2.10% (PIS) and 9.65% (COFINS). It is allowing to the company register credits related to these social contributions due on import process. And addition rate of 1% could be apply to COFINS with regard some specific products.

PIS and COFINS are also due upon the payment, credit, delivery or remittance of the amounts related to the importation of services. In general, PIS and COFINS are not levied on export transactions.

State
ICMS (State Value Added Tax)

ICMS is a type of value added state tax generally levied on imports (customs clearance), sales, transfers and other transactions involving goods, inter-municipal and inter-state transportation services and communication services (including electricity).

For imports of goods and transactions within the same State, the regular ICMS rates are from 17% to 19%. However, for some specific goods, the applicable rate on import operations and sales within the State may be different from the regular ones.
When transactions involve two different States, the rates are 7% or 12% depending on the States involved. The applicable rate is 4% on interstate transactions with imported goods, irrespective of the States involved, with some minor exceptions.

ICMS is also due either when a product is resold in the domestic market or when it is physically moved from a manufacturing facility.
ICMS taxpayers are entitled to a tax credit at the amount of the tax paid in the previous transaction with the same goods (inputs), provided the purchaser is an ICMS taxpayer with respect to that product. The tax credit may be offset against future ICMS payables.

Municipal
ISS (Municipal Services Tax)

ISS is a municipal tax on certain services listed by the federal government, specifically those informed on the Complementary Law (116/2003). The taxable basis of ISS is the price or value of the service rendered. The rates vary from 2% to 5%, depending on the municipality where the service provider or importer is located, and the type of service. In some cases, ISS is due on the place of the service is provided.

Imported services are also subject to ISS taxation regardless of whether the service is performed abroad, if its results are observed in Brazilian territory. Exported services are tax exempt, since certain conditions are met.

ISS is a single stage tax with no right of credit for ISS previously paid. Please note that there are more than 5,000 municipalities in Brazil, each one with its specific rates and regulations about ISS calculation, but always observing the rates from 2% to 5%.

No. Registration is mandatory upon commencement of legal entity activity.

Only legal entities regularly enrolled in Brazil may register for ICMS, IPI, ISS, PIS and COFINS.

No, there is currently no specific legislation to tax non-resident supplies of electronically supplied services to private consumers in Brazil.

Only legal entity regularly established in Brazil may register for ICMS, IPI, ISS, PIS and COFINS. Therefore, a business will need to create a permanent establishment in Brazil in order to register for indirect taxes.

IPI and ICMS returns are submitted monthly basis through electronic file named EFD, which is part of Public Digital Bookkeeping System (SPED)

Also, ICMS tax payers are also demanded to submit a State return on a monthly basis, and whose named could vary from one State to another (GIA, DAPI, among others).

• ISS returns are generally due on a monthly basis (but frequency may differ between municipalities). ISS returns are generally due on a monthly basis, but its layout and presentation are determined by each Municipality. In some cases, the Municipality System used to issue the Services Electronic Invoices (NFS-e) already has all the information related to tax invoices issued in the period and none specific return is demanded to be submitted.

PIS and COFINS taxpayers must submit the EFD – Contributions on a monthly basis, which is also part of Public Digital Bookkeeping System (SPED).

Yes. Penalties can be imposed for errors, omissions and delay in the submission of indirect taxes returns.

Public Digital Bookkeeping System (SPED) was created to standardize and digitize the presentation oof information from the taxpayers to tax authorities. Businesses must generally file, monthly or annually, all account and tax information available based on a standard uniform electronic format.

SPED is composed of five major areas, including the Nota Fiscal Eletrônica (NF-e). NF-e is a digital fiscal document issued and stored electronically, allowing real-time tracking and monitoring of business transactions by the Brazilian Tax Authorities.

Yes. A range of penalties can be imposed where businesses do not comply with the indirect tax rules.

No, there is no mechanism to refund any form of indirect tax incurred by businesses that are neither established nor registered in Brazil.

Electronic invoicing in the format of the Nota Fiscal Eletrônica (NF-e) is mandatory for most Brazilian legal entities, which issue an XML file that contains the information required, and this must be digitally signed with a digital certificate in order to guarantee the integrity of the data and the issuer’s identity. The tax authority makes an initial evaluation of the NF-e and send an authorization for definitive issuance.

Please note that the invoicing requirements may vary from city to city and from state to state.