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The Brazilian system of taxation is basically directed by our Constitution which has a hole section of it and allocated the taxing power among the Federal, States, D.F. and Municipals governments.

The system is divided into:

a) Taxes;

b) Fees - Regulatory and Services. The former is levied from the police power and the further is from public services. May be levied by all governmental entities;

c) Contributions - like betterment fees are collected from the owner of real state that benefits from public works. May be levied by all governmental entities;

d) Compulsory loans - levied in case of urgent public investment or national interest. Only may be levied by the Federal Government;

e) Social Contributions.

 

                    The last two are still big issues if they are tributes or not; however they are levied.

Even though our Constitution and Tax Code do not qualify the principal taxes ("imposto" in Portuguese) as aforesaid, for educational purposes, we will list them as follows:
 
 
 

TAXES	LEVIED BY THE GOVERNMENT	USUAL RATES (%)
a) Taxes on International Treaty
I.I. - Import tax	FEDERAL	0%-35% (rarely it can be higher- up to 75%)
I.E.- Export tax	FEDERAL	0%
TAXES	LEVIED BY THE GOVERNMENT	USUAL RATES (%)
b) Taxes on Income
IRPJ- Income and Capital Gains Tax on Legal Entities (Corporations and Partnerships)	FEDERAL	25%
IRPF- Income and Capital Gains Tax on Individuals	FEDERAL	R$ 900/1.800 - 15%  more than R$ 1.800 27,5%
c) Taxes on Property
IPTR - Rural Real State Tax	FEDERAL
IPTU - Urban Real State Tax	MUNICIPAL AND D.F.
ITBI -Real State Rights Transactions	STATE AND D.F.	1%- 4%
IPVA - Motor Vehicles Tax	STATE AND D.F.	2%-4%
IGF - Large Fortunes Tax ( not yet established)	FEDERAL
d) Taxes on Sales and Manufacturing		Value Added Rates
IPI – Manufactured Products Tax	FEDERAL	0%-15% . Higher rates apply to cigarettes, beverages and cosmetics
ICMS- Transactions Related to Distribution Goods and Services	STATE AND D.F.	7%- 25%
g) Taxes on Services
ISS- Service Tax	MUNICIPAL AND D.F.	0,5% - 10% It varies according to the municipal
f) Tax on Financial Transactions
IOF- Wide Applicable tax livied on Credit, Exchange, Insurance and on Securities Transactions. Its rates vary according to the transaction.	FEDERAL	vary according to the type of transaction
CPMF- Temporary Tax on Financial Operations	FEDERAL	0,25%
g) Miscellaneous Taxes
ITCM - Inheritance Donation Tax	STATE AND DF
ET - Extraordinary Taxes- may be livied on wars and other critical situations	FEDERAL

There are several social security contributions livied by the federal government to fund social programs:
 
 

TAXES	LIVIED BY THE GOVERNMENT	USUAL RATES (%)
COFINS - Social Security Financing Contribution	FEDERAL	2% on gross income
PIS/PASEP - Social Integration Program Contribution	FEDERAL	0.65% on gross income
CS - Contribution on Corporate Profits	FEDERAL	8% or 18% (financial institutions)

 

 

COMPANY INCOME TAX

The return of income for all companies (legal entities) can be done in 4 different ways, depending on the type of the accounting process:

1. Real Profits Accounting : it is the usual accounting process that will determinate the real gains, losses and net income. A 25% rate will be over the profits;
2. Assumed Profits Accounting: the Brazilian IRS ( RF) will assumed 20% of profits on gross income and 25% of this rate will be levied, thus, the tax will be 5% over gross income;
3. Arbitral Profits Accounting: only the IRS (RF) can use this accounting way, whenever the company can not show and prove the real transaction;
4. Simple Tax: only for small businesses that gross income is under R$ 720.000,00/year (US$ 610,000.00/year). The rate varies according to the gross income and it can be from 3% to 7%. This simple tax includes social contribution, IPI, IOF, II, IE, ICMS, ITR taxes and also FGTS (see labor charges section).

Income and capital gains from Brazil’s source will be taxed on a withholding tax rate of 15% on gross dividends, except for some particular situations like lease and double-taxation treaties.

Remittance from subordinate structures in Brazil to its headquarters (branches, agency and representation offices) might be deducted if the year-end closing shows that profits were bellow the remitted value.

Reinvestments of profits are investments in the domestic economy made by companies established in Brazil and assigned to persons or companies resident or domiciled abroad. Sometimes it is recommended to reinvest profits than remit it.
 
 

Brazil has settled some treaties to avoid the double-taxation within: Argentina, Austria, Belgium, Canada, China, Czechoslovakia, Denmark, Ecuador, Finland, France, Germany, Great Britain, Greece, Hungary, Holland, India, Italy , Japan, Luxembourg, Netherlands, Norway, Philippines, Portugal, South Korea, Spain, Sweden and Venezuela.

These treaties where done when the tax rate was 25% and it was settle to reduce it to 15%. Therefore, now all tax rates with or without treaty will be 15%, except under Japan convention which is 12,5% and for seven years of bank interests which can be 10%.
 
 

Repatriation of capitals may be done at any time without authorization, but foreign capital may be registered at Brazil’s Central Bank. Foreign capital which is not registered and excess of it will be considered capital gains for the foreign investor, and thus, subject to 15% withholding income tax.
 

Copyright © 1999 -Revised 10/10/2000

Zulian Advogados Associados

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