*In Brazil, a state-level sales tax—Imposto sobre Circulação de Mercadorias e Serviços (ICMS)—is due on the physical movement of merchandise. The ICMS is also levied on inter-state and inter-municipal transport services, communications and electricity.
The ordinance setting forth requirements for the 4% rate was published in the São Paulo official gazette, and provides that to qualify for the 4% ICMS rate, property or goods imported from abroad must, after clearance, meet certain requirements with respect to the percentage of content for post-import manufacturing / industrial changes made in Brazil.
Read a July 2013 report (Portuguese) prepared by the KPMG member firm in Brazil: Portaria CAT nº 64/2013
ICMS - Background
The standard rate of ICMS is 17%. However, in São Paulo, Minas Gerais, and Paraná the standard rate is 18% and in Rio de Janeiro it is 19%. On interstate movements of goods, the rate applied may vary based on the state of destination (7% or 12%, in general).
However, a resolution unified the ICMS rates applicable on interstate sales involving imported goods, after customs clearance procedures. In this manner, the current variable rates (7% or 12%) applicable on interstate sales are unified into a single rate of 4% for transactions involving imported goods, from 2013.
The unified ICMS rate applies to:
- Goods subject to no industrial process after customs clearance and
- Goods subject to industrial process after customs clearance, provided that the resulting product has 40% or more of imported content. This ratio of imported content must be verified by tax agents, according to procedures to be regulated by National Council of Fiscal Policy (Conselho Nacional de Política Fazendária – CONFAZ).
Read a KPMG overview of Brazil’s indirect tax system.