IPI – Tax on Manufactured Products
IPI, short for Imposto sobre Produtos Industrializados in Portuguese, is imposed by the federal government on the shipment of manufactured goods. It is a Value-added tax, mostly owed by manufacturers that turn raw materials, into another product by manual labor or machines, such as chemical, electronic, tobacco, and textile industries. Wholesale and retail companies usually are not subject to IPI. However, in some specific cases that is not true.
The tax authorities use the IPI to regulate and control the market. They can change the tax rates any time they want without congressional approval. The idea is to have the power to stop or reduce the sales of an item, or to increase its sales. They can also control the importation of the item by increasing or decreasing the IPI rate.
Imposed on
IPI is subject wherever the company issues an outbound invoice which contains products from the following manufacturing activities:
- Transformation
- Benefit
- Set up
- Packing
- Renewing
The IPI is also paid when a good is imported by any Brazilian individual (natural persons) or business entity. Therefore, the importer of goods is subject to IPI and customs duty on the imported value of the goods. The amount paid can offset the amount you owe at the end of the month.
Basis and Rate
The tax basis is the sales price of the invoice. If the good is subject to IPI and you donate, transfer to another branch, or do other transaction instead of selling you also need to pay IPI. It has several tax rates depend on the type of product listed on IPI Table (TIPI). Each good has a specific tax rate, the TIPI is provided by the Department of Federal Revenue of Brazil. Essential items such as bread and milk have lower tax rates than non-essential goods such as gold and jewels.
Exemptions
Usually when you export from Brazil to other countries IPI is not charged. Newspapers, books, fuel, crafts, foods prepared in restaurants, and electricity are also IPI exemptions. If a product is not in the TIPI (IPI Table) it is not taxable.
Taxpayer and Governmental Agency
IPI is owed by manufactures and importers of goods. Wholesale and retail companies can be subject to IPI in some cases. The IPI is a federal tax, therefore it is paid to the Department of Federal Revenue of Brazil. The official document to pay the IPI is the DARF (Federal Taxation Form).
Tax Principles
The Brazilian constitution and the main federal tax law have several tax principles. The following principles are the main ones which are applied to IPI:
- 90-day Delay: Laws that modify the tax or increase the tax basis or rate are only applicable 90 days after they are published.
- Selectivity: Essential items have lower tax rates than non-essential items.
- Non-cumulative: The tax on the purchase invoices can be considered input tax and the sum can be deducted from their VAT liability. The difference between output tax and input tax is paid to the government, or you can carry it over in the case of negative liability (more input tax than output tax).
Main Laws
- Decree (Regulation) 7212, June 15, 2010 (IPI – Tax on Manufactured Products)
Tax Returns and Forms
The taxpayer is required to report the IPI on the following tax returns and forms:
- Notas Fiscais (Brazil local invoices).
- EFD ICMS IPI – Digital Tax report for ICMS and IPI.
Written by Thiago M. Silveira
Thiago M. Silveira is a Brazilian Chartered Certified Accountant (CRC) with more than 10 years of success in the accounting field, with insightful understanding in all aspects of accounting, financial reports preparation, local taxes and compliance in Brazil.
