Withholding Taxes in Brazil

There are several taxes withheld in Brazil and sometimes it is hard to know which tax should be withheld. These taxes withheld are only applicable to services and employee wages. There is usually no tax withheld when a good is sold.

Individuals as employees, independent contractors, and businesses are subject to the following tax withholding:

• IRRF, short for Imposto sobre a Renda Retido na Fonte in Portuguese, is the Brazilian withheld income tax. There are several tax brackets for individuals. The standard tax rates for business are 1% and 1.5%
• INSS, short for Instituto Nacional do Seguro Social in Portuguese, is the social security tax withheld from employees’ paychecks and other payments.

Almost every year the Department of Federal Revenue of Brazil issues new withholding tables, directing employers to adjust how much tax they take from workers’ paychecks.

Besides IRRF and INSS, entities and businesses are subject to the following tax withholding:

• PIS/PASEP, short for Programas de Integração Social e de Formação do Patrimônio do Servidor Público in Portuguese, is a tax on gross revenue withheld in some specific payments.
• COFINS, short for Contribuição para o Financiamento da Seguridade Social in Portuguese, is also a tax on gross revenue withheld in some specific payments.
• CSLL, short for Contribuição Social sobre o Lucro Líquido in Portuguese, is a Brazilian income tax withheld from payments to other business.
• 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.

Usually, PIS/PASEP, COFINS, and CSLL are withheld for the same types of services, the combined standard rate is 4.65%. However, different rates of ISS are applied, ranging from 2% to 5%.

The following payments are subject to tax withholding:

• Wages;
• Tips;
• Rent paid to individuals.
• Services

Some payments usually are not subject to tax withholding, such as:

• rent paid to companies
• dividends

These withheld taxes must be remitted to the correct tax authorities, municipal or federal, within specified time limits, which vary depending on the tax. It is required to report, on a monthly basis, all tax withheld by customers and tax withheld on payments. The amount withheld is applied as a prepayment of the specific tax and is refundable if it exceeds the tax liability determined upon filing the tax return.

Written by Thiago M. Silveira