Discover Brazil’s taxation system in this comprehensive guide. Learn about corporate taxes, forming entities, compliance, individual taxation rates, and more.
With 4.93 billion USD of imports from Brazil under various categories like vegetable oils, mineral fuels, distillation products etc., India has to learn the taxation system of Brazil who would love to export more and meet the emerging Indian markets with warm hearts. But it is time to know the complex corporate taxes of the said country which was recently forced to come with more tax reforms on their intellectual property systems in tune with OECD guidelines to merge with the world tax systems. Indian exports amounted USD 6.26 Billion as at end of 2021. Let us learn their tax system.
Brazil tax highlights
Let me start with corporate taxes.
The currency is Brazilian Real (BRL)
What is the audit limit of publishing company financial statements like annual reports, balance sheets, income statements and minutes of annual meetings in the annual gazette and well-known newspapers?
Corporates with assets exceeding BRL 240 million and gross revenue beyond BRL 300 million. A nonpublic corporation with BRL 2 million and beyond. Business entities are called Limited liability company (LTDA) and corporation (CA).
How are corporates formed?
https://www.dentons.com/en/services-and-solutions/global-tax-guide-to-doing-business-in/brazil
Let us detour the information from above MNC which operates in many global countries including Brazil.
Establishing an independent Brazilian subsidiary which operates with its own taxation is an easy option for any corporate from abroad which wants to work from Brazil.
With an option of 30-45 days to get permission to set up a subsidiary which needs registration of tax registries for opening of bank accounts, getting some place to operate, and setting up of manufacturing factories.
With the articles of association requiring two quota holders who are individually and severally responsible for the whole share capital, any Limited Liability Company can be established with no limitation as to who will be the quota holders.
Anyone such as Brazilian, foreign individuals or foreign entities may the quota holders.
Any amount can be the share capital for LLC.
75% or more share quotas constitute the control of the corporate.
All corporates listed in stock exchanges need annual audit of their financial statements.
Any share capital contributed towards a Brazilian entity invites tax @ 0.38% of the conversion of foreign currency into Brazil Real. This also gets registered with Brazil Central Bank whose permission is taken for remittance of dividends, repatriation of capital also.
Inter company loans also get registered with Brazil Central Bank.
Withholding tax implications
Payment of interest by resident company to a non-resident one invites a withholding tax @15% which increases to 25% in case of the companies emerging from low tax jurisdictions. Treaty arrangements with other nations do reduce the withholding rates of tax.
|
Corporate taxation |
|
| Corporate tax rate | 15% (34% including surtax) |
| Branch tax rate | 15% (34% including surtax) |
| Capital gains tax rate | 15% (34% including surtax) |
Any company incorporated in Brazil is a resident one.
Resident companies are taxed on world wide income while a foreign company is subject to Brazilian tax for the income earned therein.
Brazilian companies my opt for actual or presumed profit method.
Qualifying small enterprises with annual gross income not exceeding BRL 4.8 million may elect to be taxed under a simplified regime.
Though corporate tax is simply 15% additional surtax of 10% an annual income beyond BRL of 240k and 9% social contribution tax make it 34%, one of the highest in the world.
Luckily dividends received by individuals and entities in Brazil are not included in taxable income.
It is for certain that foreign tax credit is available for qualifying foreign taxes paid abroad. Yes, this can be used to offset IRP and CSLL. There is no specific participation regime. Further there is no holding company regime either.
Let us talk of incentives.
Information technology and R&D projects are eligible for tax incentives. An inclusion is allowed corporate tax base of 60% to 100% of R&D projects.
Exports are eligible for export incentives like refund of a certain % of the value of export revenue depending upon the types of goods exported. They too are eligible for duty drawbacks on imports.
Let’s talk of compliance for corporations.
The tax year is generally the calendar year.
No more consolidated returns but individual ones only. All eligible to file taxes should file annual income tax return for the previous calendar year by the last day of July.
Late payment of IRP and CSLL invite penalties and interest.
Corporates can easily get clarifications for tax issues from authorities popularly known in other places as rulings though such a system does not exist in Brazil. Inconsistent decisions are appealed against for a final statement. This will be binding on all taxpayers.
What about value added taxes in Brazil?
Information from
https://santandertrade.com/en/portal/establish-overseas/brazil/tax-system
“Four types of value-added tax are in effect in Brazil, at federal, state and municipal levels: (i) State VAT (ICMS) applies to the circulation and importation of goods and the supply of interstate transportation, communication services and electricity; (ii) Federal VAT (IPI) is levied on “finished goods” that are moved in and out of the country; (iii) Municipal Service Tax (ISS), a sales tax payable to municipalities that applies to service not taxable by ICMS; (iv) Gross Receipt Contributions (PIS-PASEP and COFINS) levied on companies’ gross revenues and imports. Companies must register with federal and state authorities to sell goods and with municipalities to provide services as well. In general, all the taxes are filed monthly.
Individual taxation then enlightens us with its myriad details.
What are the individual taxation rates?
|
Individual income tax rate |
||
| Taxable income | Rate | Deductible tax amt (BRL) |
| Up to BRL 22848 | 0% | 0 |
| BRL 22849-33920 | 7.5% | 142.8 |
| BRL 33921-45012 | 15% | 354.8 |
| BRL 45013-55976 | 22.5% | 636.13 |
| Over BRL 55976 | 27.5% | 869.36 |
| Capital gains rate | rates differ from 15%-22.5% | |
Like anywhere else, taxation takes place on global income. Nonresidents claim taxation on their income in Brazil only.
Joint filing of tax returns with wife is permissible.
Taxable income includes wages, bonuses, consulting fees, commissions, premiums, director’s fees, dividends, and interest from foreign sources. It includes more allowances connected with employment.
Non- residents of nontreaty nations get taxed at 25% on earned income and 15% on other income except dividends from a Brazilian company which are tax free.
Alternate income taxes
What is the annual profit sharing for the corporates with its employees?
|
Annual profit-sharing BRL |
Tax rate % | Deductible tax amount BRL |
| 0-6677 | 0 | 0 |
| 6678-9922 | 7.5 | 500 |
| 9923-13167 | 15 | 1244 |
| 13168-16380 | 22.5 | 2232 |
| Above 16381 | 27.5 | 3051 |
Use of alimony as deduction allowed for tax amount. Payment to be twice a year.
There is no provision of state/local/provincial income taxes.
Who is the resident of Brazil?
-
- Brazilian citizens living in Brazil.
- Brazilian residents living abroad for the first 12 months subsequent to their departure (in cases where no exit process is filed).
- Naturalised foreign nationals living in Brazil.
- Foreign national holders of permanent visas and holders of temporary work visas under an employment contract with a Brazilian entity, as of the date of entry to Brazil with such visas.
- Individuals who enter into Brazil under a temporary visa to work as a doctor under the program ‘Mais Médicos‘ on the date of arrival.
- Foreign nationals holding temporary visas without an employment contract with a Brazilian entity, after completing 183 days of actual physical presence in Brazil (consecutive or not) within a 12-months period.
- Nationals from Mercosul States (Argentina, Paraguay, and Uruguay), as well as from Bolivia, Chile, Colombia, and Peru, who claim temporary residence on the date the work relationship is established or on the date permanent residence is achieved.
Who are nonresidents?
-
- Brazilians living abroad, as of the date of departure (if the exit process has been filed).
- Brazilians living abroad, after 12 months of departure (if the exit process has not been filed).
- Foreign nationals holding temporary visas without an employment contract with a Brazilian entity, during their first 183 days of actual physical presence in Brazil (consecutive or not) within a 12-months period.
Social security contributions as per the following table are applicable as on date.
|
Contribution salary range |
social security rate% | ceiling contribution |
| Up to 1212 | 7.5 | 0 |
| 1213-2427 | 9.0 | 0 |
| 2428-3641 | 12.0 | 0 |
| 3642-7087 | 14.0 | 828 |
Companies that provide certain services (information technology; communication companies; hotel services; integrated circuits design or development; transport companies; aircraft, engines, components, and related equipment maintenance and repair; navigation support maritime, port support, and others) and specific industrial sectors (clothing, leather, fur, textiles, metal products, buttons, and others) pay social security contributions in the range of up to 4.5% depending upon the industry of operation on total revenue of the individual company.
Let us look at capital gains tax. What is it?
The capital gain tax is applicable on the sale of real estate, vehicles and objects of art and collectibles sold in Brazil or abroad; on stocks sold in foreign markets, as well as on interest income received from investments located offshore.
Non-residents, naturally are only subject to capital gains tax resulted from the sale of assets located in Brazil. The gain is calculated on the excess of the sale price over the cost of the asset sold at a tax rate of 15%. However, for tax residents in Brazil, there are certain exemptions applicable that must be observed.
It is also important to learn that, from 1 January 2017, onwards the portion of capital gain that exceeds BRL 5 million will be taxed at higher rates, ranging from 17.5% to the maximum rate of 22.5%, the latter applicable to the portion of capital gain that exceeds BRL 30 million.
What about inheritance, gift, or estate taxes?
These are levied by the state authorities which may raise up to 8% tax implications.
I would like to state that it is very difficult to get adequate tax information from the Central tax authorities of Brazil from the following web site.
Federal Revenue Service web site is reproduced below.
Being not available in English, I have to use many big 4 firms’ website which explain in simple English the relevant tax information.
Conclusion
Being non-English in their web sites, the departments of Brazilian government did not help me much. However some websites of those dealing with many countries did help me. Apart from above quoted ones, the following from PWC also helped me. It is also quoted wherever needed.
https://taxsummaries.pwc.com/brazil/individual/income-determination
One can refer the above websites with the relevant number of their CPAs who can help for filing of tax, consultation etc. Yes, at a cost decided by them. With the admission of the importance of the rapid growing Indian economy, its domination in soft power, vast population which offers enormous scope for sale of the goods from Brazil their government wants to improve economic relationship with India. India too needs to offer of its expertise in software, manufacturing base for their products or vast management/tax/audit consultation from our experts.
Offering enormous export incentives to set up production units, increasing export incentives to units offering services from their land for the outside world, and an increasing trend to merge with the world economy, Brazil is a frontier totally ignored by our nation. By taking initiatives Indian industry/government of India would help Indian economy to reach its goal of $7 trillion USD.
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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
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