The complexity of the Brazilian tax system is a huge concern of Brazilian accountants and tax advisors. They are aware of their complications. For some companies and individuals, the tax bill is a nightmare. The Brazilian tax system has several types of taxes and they are grouped into Goods and Services Tax, Income Tax, Property tax, Social Security Contributions, and Tariffs.

Definitely, the goods and services taxes—mostly consumption taxes—are the ones with more complexity and variety. This type of tax is often criticized by tax advisors and business owners. Finding assistance is important. However, if you know the fundamentals you can ask the right questions.

Income Tax

IRPJ – Corporate Income Tax

IRPJ, short for Imposto sobre a Renda das Pessoas Jurídicas in Portuguese, is imposed by the federal government on corporate income. Companies that have less than BRL 20,000.00 taxable monthly income are subjected to a 15% income tax rate. Companies that earn more than this amount are taxed at 25%. Usually, the total income tax rate in Brazil for companies is 34% (25% of IRPJ plus 9% of CSLL).

CSLL – Corporate Income Tax (Social Contribution)

CSLL, short for Contribuição Social sobre o Lucro Líquido in Portuguese, is imposed by the federal government on corporate income. The standard rate is 9%, but it is 20% or 15% for financial institutions.

IRRF – Withheld Income Tax

IRRF, short for Imposto sobre a Renda Retido na Fonte in Portuguese, is imposed by the federal government. It is income tax withheld from employees’ wages and company receipts. The withholding from individuals has several tax brackets. Tax withheld by companies is usually at a rate of 1% or 1.5%.

IRPF – Individual Income Tax

IRPF, short for Imposto de Renda da Pessoa Física in Portuguese, is imposed by the federal government on individual income. Brazil has a progressive income tax system with several tax brackets. The lowest tax rate is 7.5% and the highest tax rate is 27.5%.

Social Security Contributions

INSS – Social Security Contributions

INSS, short for Instituto Nacional do Seguro Social in Portuguese, is imposed by the federal government on employee and self-employed wages and earnings to fund Social Security programs. Employers should pay their tax and also withhold it from employee paychecks.

Goods and Services Tax

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 the chemical, electronic, tobacco, and textile industries. Different rates of IPI are applied, ranging from 0% to 300%.

PIS/PASEP – Tax on Gross Revenue

PIS/PASEP, short for Programas de Integração Social e de Formação do Patrimônio do Servidor Público in Portuguese, is imposed by the federal government on gross revenue, independent of the source, on the majority of entities and payroll for some businesses.

The gross revenue calculation has two methods. The first one allows the tax on purchase invoices (for specific services and goods) to be considered as paid tax and deduct the sum from their liability, this rate is 1.65%. The second method does not allow the recovery of paid taxes, the rate is 0.65%.

COFINS – Tax on Gross Revenue

COFINS, short for Contribuição para o Financiamento da Seguridade Social in Portuguese, is imposed by the federal government on gross revenue, independent of the source, for the majority of entities and on the payroll for some business.

The gross revenue calculation has two methods. The first one allows the tax on the purchase invoices (for specific services and goods) to be considered a paid tax and deduct the sum from their liability, this rate is 7.6%. The second method does not allow the recovery of paid taxes, the rate is 3%.

ICMS – Value-Added Tax

ICMS, short for Imposto sobre operações relativas à circulação de mercadorias e sobre prestações de serviços de transporte interestadual e intermunicipal e de comunicação in Portuguese, is imposed by state governments on the distribution of any goods and specific services, such as transportation and communication. It is a value-added tax, mostly owed by manufacturers, wholesalers and retail companies.

In general, ICMS is a non-cumulative tax. Therefore, it is allowed to consider the tax on purchase invoices as paid tax and can be deducted from ICMS liability. Each state has its own ICMS tax laws. In Brazil, there is a constant fight among the states to increase the amount that each state receives on transactions subjected to ICMS, and each state wants to claim every interstate tax for itself.

ISS – Sales Tax on Services

ISS, short for Imposto Sobre Serviços de Qualquer Natureza in Portuguese, is imposed by municipal governments on the sale of services. It is a sales tax, mostly owed by businesses selling any type of service, from basic to professional. It is not allowed to consider this tax on purchase invoices as paid tax and deduct the sum from ISS liability.

Each city has its own ISS tax laws, and sometimes it is hard to identify where the services are rendered and for each city how the tax should be collected. This tax is more important for companies in sectors such as the service industry.

Different rates of ISS are applied, ranging from 2% to 5%.

CIDE – Tax on fuel and foreign wire transfers

CIDE, short for Contribuição de Intervenção no Domínio Econômico in Portuguese, is imposed by the federal government on the importation and commercialization of fuel and gas and their by-products. It is also imposed on foreign wire transfers as a royalty payment.

IOF – Tax on Financial Transaction

IOF, short for Imposto sobre Operações de Crédito, Câmbio e Seguros in Portuguese, is imposed by the federal government on loans, foreign wire transfers, foreign credit-card purchases, insurance, and securities.

Property tax

IPTU – Urban Property Tax

IPTU**,** short for Imposto Predial e Territorial Urbano in Portuguese, is imposed by municipal governments on real estate in urban areas, not applicable in rural areas. The taxpayer is the property owner on January 1st.

ITR – Rural Property Tax

ITR, short for Imposto sobre a Propriedade Territorial Rural in Portuguese, is imposed by the federal government on land ownership in rural areas, not applicable in urban areas. The taxpayer is the landowner on January 1st.

IPVA – Vehicle Tax

IPVA, short for Imposto sobre a Propriedade de Veículos Automotores in Portuguese, is imposed by state governments on owners of vehicles. The taxpayer is the vehicle owner on January 1st.

ITCD – Inheritance and Donation Tax

ITCD, short for Imposto sobre Transmissão “Causa Mortis” e Doação de Quaisquer Bens ou Direitos in Portuguese, is imposed by state governments on inheritance and on donation of assets or rights.

ITBI – Transfer Tax

ITBI, short for Imposto de Transmissão de Bens Imóveis Inter-Vivos in Portuguese, is imposed by municipal governments on commercial real estate transactions, except for inheritance or donation.

Tariff

II – Import Duty

II, short for Imposto de Importação in Portuguese, is imposed by the federal government on imported goods based on the value of products. Basically, it is levied when imported goods first enter the country. The rates for imports are listed in the TEC (Tarifa Externa Comum), which is published by Mercosul.

IE – Export Duty

IE, short for Imposto de Exportação in Portuguese, is imposed by the federal government on exported goods based on the value of products under free competition conditions.

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.

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