Contribution for intervention in the economic domain (CIDE)
The contribution is due for payments made in connection with:
- License agreements
- Acquisition of technological know-how or
- Agreements involving cross-border transfer of technology
CIDE also applies to the cross-border provision of technical services, administrative assistance and other similar services that do not involve the transfer of technology.
CIDE is generally imposed at a 10 percent rate over the total amount paid, credited, delivered or remitted abroad to non-resident beneficiaries.
Welfare contributions on gross revenues (PIS/COFINS)
The Contribution to the Social Integration Program (PIS) and the Contribution to Finance Social Security (COFINS) are welfare contributions that are levied over a taxpayer's gross revenue. Currently, there are 2 methods of calculating PIS/COFINS, the cumulative and non-cumulative methods.
The cumulative method is applicable to cooperative organizations, immune or exempt entities companies, financial institutions, insurance companies and taxpayers that accrue the corporate income tax in accordance with the deemed profits method. Under such method, the PIS shall apply at a 0.65 percent rate, whereas the COFINS will apply at a 3 percent rate.
The non-cumulative method is applicable to most legal entities. The main purpose of this legislation is to avoid the cascading effect of the welfare contributions by granting tax credits that can be offset with PIS/COFINS payable amounts. Currently, PIS and COFINS apply at a combined rate of 9.25 percent, with PIS at 1.65 percent and COFINS at 7.6 percent.
The taxpayer is entitled to calculate tax credits over the following expenses:
- Acquisition of goods for resale
- Inputs (ie, goods and/or services) that are deemed as necessary and essential for the maintenance of the taxpayer's activities
- Acquisition of electric energy
- Payment of leases related to buildings, machinery and equipment
- Lease expenses derived from leasing transactions (arrendamento mercantil)
- Acquisition or manufacture of machinery and equipment to be leased to third parties, or used in the manufacture of products intended for sale, and/or for incorporation as a fixed asset
- Buildings and betterments in third-party real estate property to be used in the company's operations
- Storage and freight costs, incurred in sale transactions, supported by the seller
- Meal coupons, transportation and uniforms provided to employees by a company that engages in cleaning, conservation and maintenance services and
- Intangible assets, acquired for the utilization in the manufacture of goods destined for sale or in the rendering of services.
Furthermore, PIS and COFINS shall not apply to:
- Revenues resulting from export transactions, whose payment represents an inflow of foreign capital into Brazil and
- Revenues derived from domestic sales by trading companies (empresas comerciais exportadoras) with specific export purposes
Originally, under the non-cumulative system, a taxpayer's financial revenues were taxed by PIS/COFINS at a 0-percent tax rate (except those derived from interest on equity perceived by holding companies and hedge transactions). However, the tax rate applicable to these specific revenues is now 4.65 percent, with PIS at 0.65 percent and COFINS at 4 percent.
The concept of "gross revenues" for the calculation of the PIS and COFINS under the cumulative system has been changed under legislation. Accordingly, "gross revenues" for such purposes is defined as:
- The results of the sale of goods and provision of services
- The result of operations on behalf of third parties and
- Revenues derived from taxpayer's main activity that are not comprised as retail of goods and provision of services
PIS and COFINS over import transactions (PIS/COFINS-import)
PIS and COFINS are also charged on import transactions of goods and services. As a general rule, in respect of the importation of goods, PIS shall apply at a 2.1 percent rate and COIFNS at a 9.65 percent rate. Whereas, in respect of the importation of services, PIS shall apply at a 1.65 percent rate, and COFINS at a 7.6 percent rate.
Please note that the importation of certain goods, such as pharmaceuticals, are taxed at specific tax rates. In addition, with respect to certain import transactions, a COFINS 1 percent surcharge may apply.
The tax basis shall be the customs value of the imported goods or the amount charged for the service by the foreign contractor.
Taxpayers that are subject to the PIS/COFINS under the non-cumulative system are allowed to accrue tax credits from the PIS and COFINS paid on their imports and offset them against the PIS and COFINS accrued over their respective gross revenue.
Federal excise tax (IPI)
IPI is a Federal value-added tax, which applies to manufactured products, either to their importation or manufacture in Brazil. IPI rates may vary depending on the type of product and whether it is regarded as essential.
Import duty (II)
II is due upon customs clearance of imported products on an ad valorem basis. The rate varies, depending on the tariff classification of the product imported.
As mentioned above, import transactions are also subject to the PIS/COFINS-import and to the IPI. Import transactions are also taxed by the State VAT (ICMS). These taxes, along with II, are calculated as follows:
- The II and the PIS/COFINS-import are imposed over the good's customs value (ie, CIF value)
- The IPI is levied on the CIF value plus II and
- The ICMS is levied on the CIF value plus II, IPI and ICMS itself
Export tax (IE)
IE applies to the export of certain listed goods and the tax is calculated on an ad valorem basis. The tax rate varies depending on the type of product exported.
Financial transaction tax (IOF)
The IOF applies to several types of transactions such as credit, exchange and insurance, loans, as well as on transactions involving gold, financial asset or exchange instruments. IOF rates and basis vary depending on the nature of the transaction.
State VAT on sales and services (ICMS)
Similar to the IPI, the ICMS is another value-added tax on sales, communication and transportation services, payable upon the importation of a product into Brazil, the sale of a good in the Brazilian market, or upon the provision of certain communication and intrastate and interstate transportation services.
ICMS rates and tax benefits vary from State to State and depend on the type of transaction (eg, import, intrastate or interstate sale of goods, communication or transportation services, etc.).
The ICMS non-cumulative system permits a taxpayer to offset the ICMS paid in acquired goods and services against the ICMS due on subsequent taxable transactions (eg, sale of goods and services subject to ICMS tax). The difference is the amount due to the state government.
Note that State ICMS legislation may attribute the responsibility to pay the ICMS to a legal entity that, although it did not perform the relevant taxable transaction per se, had an indirect relation to it. An example is the responsibility for paying the ICMS attributed to electricity generator or distributors on 1 or more operations, from production or importation until the end consumer.
Specific rules apply to operations with hydrocarbons, such as oil, lubricants and natural gas.
Estate and gift tax (ITCMD)
ITCMD is a state tax that is levied on the transmission of movable or immovable assets as a result of donation or in the event of the death of the owner. As a general rule, ITCMD is subject to rates varying from 4 percent to 8 percent, depending on the state, over the fair value of the movable asset, real estate or transmitted rights.
Tax on services (ISS)
ISS is a municipal tax that applies to the price charged for the provision of certain listed services. Rates vary from 2 percent to 5 percent, depending on the type of service and the particular municipality in which the party rendering the services is located.
The ISS shall also apply to the importation of services. In such circumstances, each municipality may set forth in the relevant municipal legislation that the contracting parties located in Brazil are liable for collecting the relevant tax.
The ISS shall not apply to the exportation of services, except over those developed in Brazil and whose results also occur in Brazil, even if the contracting party is a foreign resident.
Real estate property tax (IPTU)
IPTU is a municipal tax levied annually, at progressive rates according to the appraised value and use of the real estate, and over the ownership, possession and use of urban realty.
Real estate transfer tax (ITBI)
ITBI is a municipal tax on the transfer of real estate. The rates may vary according to the actual value of the transaction or the appraised value of the property, whichever is higher.
Individual income taxation (IRPF)
Brazilian tax legislation distinguishes individual residents from non-residents. As mentioned above, a Brazilian national is automatically a resident while legally domiciled in Brazil or, if not domiciled in Brazil, upon their election to be treated as a resident for tax purposes.
In general, resident individuals are subject to tax on their worldwide income, regardless of nationality (universal taxation), while non-residents are generally subject to tax in Brazil only on Brazilian source income (limited taxation).
A foreign individual will be considered to be a tax resident in Brazil when:
- Admitted to the country under a permanent visa or
- Admitted to the country under a temporary visa, and
- Under an employment relationship for purposes of Brazilian law, on the day such relationship is established or
- Upon completing 184 days, consecutive or not, of physical presence in Brazil within a 12-month period
The duration of the time period for this visa begins on the day the foreigner enters Brazil, independent of the calendar year. The days counted are only those days spent within the country, interrupted upon the moment they leave Brazil and recommenced if they return.
Tax residents are subject to income tax on worldwide income on a cash basis for each year, even if the income is generated abroad. An individual income tax return should be filed by the last business day of April to report income received in the previous year, with no extensions.
Brazil has a different set of rules for ordinary income, capital gains, income received from abroad and from individuals and income from financial products.
Ordinary income is subject to progressive rates ranging from 7.5 percent up to 27.5 percent.
Compensation received from a Brazilian company for services provided under an employment relationship or as an individual contractor is subject to WHT at monthly progressive rates also ranging from 7.5 percent up to 27.5 percent, depending on the amount of income perceived.
In the annual income tax return, the taxpayer must report all ordinary income received from all Brazilian payment sources on a consolidated basis. Consolidated ordinary income will be subject to income tax at the progressive rates mentioned above. Because each payment source calculates WHT separately, without taking into account the taxpayer's overall income and bracket, the taxpayer might be required to make an additional tax payment upon filing of the annual income tax return.
Capital gains resulting from the disposition of assets and other rights, including investments in the capital markets (ie, disposition of stocks, commodities and other rights) are subject to income tax at capital gains, at rates varying from 15 percent up to 22.5 percent.
Income received from paying sources located abroad and from individuals in Brazil are subject to a mandatory monthly tax payment (Carnê Leão), which is due at the same progressive tax rates applicable to ordinary income mentioned above. The tax must be collected until the last business day of the following month.
Financial income from Brazilian sources is subject to a final withholding tax system performed by the financial institution. Tax rates shall vary according to the type of investment and also on the term under which it was made.
Brazil provides double taxation relief through a foreign tax credit system applicable to income tax paid to countries with which Brazil has entered into a tax treaty or on a reciprocity basis when the source country also grants a foreign tax credit for taxes paid in Brazil on Brazilian source income. The Brazilian tax authorities have agreed on a reciprocity basis with the United States, Germany, United Arab Emirates and United Kingdom.
