Explore the requirements and rules that apply to Indirect Taxes in Brazil.
Explore the requirements and rules that apply to Indirect Taxes in Brazil.
Types of indirect taxes (VAT/GST and other indirect taxes).
There are two types of VAT in Brazil:
Are there other indirect taxes?
There are other taxes on supplies of goods or services:
What supplies are subject to VAT?
There are two value-added taxes in Brazil. One is a state sales tax (Imposto sobre Circulação de Mercadorias e Serviços - ICMS) and the other is a federal excise tax (imposto sobre produtos industrializados - IPI).
ICMS is due on the physical movement of merchandise and is also levied on inter-state and inter-municipal transport services, communications and electricity.
IPI excise tax is due, with a few exceptions, on all goods imported or manufactured in Brazil.
The tax is paid upon import or on the manufacture of a product. Credit is given with respect to the IPI tax paid on raw materials or component parts used in the finished product or consumed in production. The difference in IPI must also be paid if the goods or products are:
Furthermore, there are other taxes on supply of goods or services:
ISS is a municipal tax on gross billings for services. Services subject to the ISS are defined by federal law. Each municipality/city must have its own list of taxed services. The COFINS is described as a social contribution and is targeted for funding of social welfare programs. The COFINS is charged on gross receipts from supply of goods and services.
The PIS was created to fund the unemployment insurance program.
What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?
Who is required to register for VAT/GST and other indirect taxes?
If a business supplies goods and/or services that are subject to IPI, ICMS, ISS, PIS or COFINS in Brazil, registration is compulsory. There is no threshold below which a business is not required to account for these taxes.
Businesses are required to separately register for ICMS in each state and ISS in each city where they have an establishment.
Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?
No, foreign businesses are able to register for IPI, ICMS, ISS, PIS and COFINS only if they have a permanent establishment in Brazil and perform taxable transactions in the country. This will most likely give rise to corporate income and other local tax liabilities in Brazil.
Are there any simplifications that could avoid the need for an overseas company to register for VAT?
Foreign companies that operate in Brazil are subject to the same legal requirements as domestic companies, assuming that they have established a permanent business in the country.
Does an overseas company need to appoint a fiscal representative?
Only when the company has a permanent establishment.
Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?
Not applicable.
Is grouping* for VAT/GST and other indirect taxes possible?
VAT grouping is possible for the purposes of calculating and withholding contributions for PIS and/or COFINS. Some states may offer some tax grouping (e.g. headquarter branches located within the state’s territory).
How frequently are VAT/GST and other indirect tax returns submitted?
Monthly.
What are the exchange rate rules in your country?
If a business receives a purchase invoice in foreign currency, the value of the goods needs to be converted into Brazilian currency using the exchange rate published by the Brazilian Central Bank.
Businesses cannot issue VAT invoices in a foreign currency. The invoices must be issued in the local currency.
Exports – Goods
How are exports of goods treated?
The Brazilian Federal Constitution establishes that goods intended for export have tax immunity (exemption).
Exports - Services
How are exports of services treated for VAT/GST purposes?
The Brazilian Federal Constitution establishes that services intended for export have tax immunity (exemption) irrespective of whether the purchaser is an individual or a business.
Imports – Goods
How are goods dealt with on importation?
As a rule, import operations are subject to the following taxes: II (import duty), ICMS, IPI, PIS/COFINS.
From a Brazilian regulatory, tax and legal perspective there is no restriction on having an individual as the importer of record (IOR). Nevertheless, some requirements should be met:
The company located overseas can hire the services of a Brazilian post office and include the total amount of such service and taxes in the value of the goods (in case of e-commerce), if the client is informed about this procedure. In this case, the post office will be responsible for paying the taxes, completing the necessary documentation and delivering the goods directly to the client’s address.
Imports – Services
How are services brought in from abroad treated for VAT purposes?
The company importing the services will be responsible for paying the taxes (ISS, PIS and COFINS). The non-resident is not obliged to register for VAT in Brazil and will not be responsible for any taxes.
On importing services, ISS, PIS and COFINS are paid, as well as other federal taxes (not indirect taxes), such as IOF (tax on financial transactions), CIDE (contribution of intervention in the economic domain) and IRRF (withholding income tax).
Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?
No.
Are there any exemptions with the right to recover or deduct input VAT?
Not applicable.
Are there any restrictions to the deduction of input VAT?
In general, goods, services or products do not generate a right to a credit if the final product was tax exempt.
However, the legislation establishes some exceptions as far as ICMS, IPI, PIS and COFINS are concerned.
When is VAT/GST due on a supply of goods or services?
The ICMS triggering event is the output of products (i.e. the physical circulation of products) and the customs clearance of imported goods. The IPI triggering event is the output of manufactured products and the customs clearance of imported goods. The ISS triggering event is when the service is rendered. Finally, the PIS and COFINS triggering events are the receipt of revenue by the company.
Is a business required to issue tax invoices?
Yes.
Is it possible/mandatory to issue invoices electronically?
Yes, most companies are required by law to issue invoices electronically.
Is it possible for the vendor to issue an invoice (i.e. self-billing)?
As a rule, self-invoicing is not allowed except in specific situations established in the legislation.
How long must records and invoices be retained?
They must be retained for five years. However, regarding electronic invoices (NF-e), the issuer must retain only the XML file.
Can the invoices be stored abroad?
No.
Do tax audits take place on a regular basis?
Yes, some taxpayers are audited monthly. However, this applies to large taxpayers. Regular taxpayers are audited, on average, once every five years.
Are audits done electronically in your country (e-audit)? If so, what system is in use?
Yes, Brazilian legislation requires taxpayers to provide all information electronically.
What penalties can arise from non-compliance?
Penalties range from 1 percent to 150 percent. The regular penalty is 75 percent of tax due.
Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?
If a company sells its business while it is in operation, tax cannot be levied. However, it is a requirement for this benefit that the company is sold with all of its assets and inventory, without any moving of such assets. Otherwise, taxes shall be levied.
Are there unique, specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions
Yes, the indirect tax rules in Brazil are very specific. For example:
Does a reverse-charge mechanism apply for goods or services?
No.
Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?
Yes, there are several tax incentives.
Certain supplies are exempt from ICMS, such as supplies of books, newspapers and paper consumed in the printing of such goods; sale of fixed assets, fruits, vegetables, farm and garden produce and preservatives.
The reduced IPI rate of 0 percent applies, for example, to live animals and animal products, plant products, chemical products, textile products and shoes.
Certain supplies are exempt from IPI, such as supplies of vessels (except sporting or pleasure boats), exports, books, newspapers, periodicals and paper consumed in the printing of such products, electric energy, petroleum products, fuel and minerals belonging to the country.
The ISS rates may vary from one municipality to another but are always in the range of 2 to 5 percent. Certain supplies are exempt from ISS, such as exports of services, amounts intermediated in the bonds and securities market, the amount of bank deposits, the capital, interests and default interests regarding credit operations performed by financial institutions.
Certain supplies are exempt from PIS and COFINS, such as the exportation of goods, the exportation of services with payment in convertible currency, sales of products to a commercial export company for export purposes specifically and sales of fixed assets. Finally, some Brazilian states grant ICMS benefits (reductions and exemptions) for new business but this situation, called 'tax war', could trigger questioning among the states.
Are rulings and decisions issued by the tax authorities publicly available?
Yes.
Elson Bueno
Partner
KPMG in Brazil
T: +55 11 3940 3281
E: ebueno@kpmg.com.br
Lúcio Bastos
Partner
KPMG in Brazil
T: +55 11 3940 5071
E: lbastos@kpmg.com.br
Maria Isabel Ferreira
Partner
KPMG in Brazil
T: +55 11 3940 2020
E: miferreira@kpmg.com.br
Maria Vilma Andrade
Partner
KPMG in Brazil
T: +55 11 3940 4172
E: mvandrade@kpmg.com.br
*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).