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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 7/1/2013

Brazil: VAT essentials 

Essential information regarding VAT as it applies in Brazil.


Scope and rates

What supplies are liable 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. The ICMS 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 the 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:


  • imported and sold at a higher price by the importer to a domestic purchaser
  • repackaged for sale at a higher price
  • sold at a higher price by the producer or manufacturer through a branch or
  • sold through exclusive distributors, a joint venture, or through an affiliated concern.

Furthermore, there are other taxes that are due on supply of goods or services: services tax (Imposto Sobre Serviços [ISS]), social contribution on billing (Contribuição para o Financiamento da Seguridade Social [COFINS]) and contribution to the social integration programme (Programa de Integração Social [PIS]).


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. The COFINS is charged on gross receipts from supply of goods and services.


What is the standard rate of VAT?


The standard rates of VAT are:


ICMS


The standard rate of ICMS is 17 percent. However, in São Paulo, Minas Gerais and Paraná the standard rate is 18 percent and Rio de Janeiro is 19 percent. On inter-state movements of goods, the rate applied may vary based on the state of destination (7 or 12 percent, in general).


However, the Resolution 13/2012, unified the State VAT rates applicable on interstate sales involving imported goods, after customs clearance procedures. In this manner, the current variable rates (7 or 12 percent) applicable on interstate sales are unified into the single rate of 4 percent for transactions involving imported goods, since 2013.


The unified ICMS rate is applicable apply 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 percent or more of imported content. This ratio of imported content must be verified by tax agents, according to procedures regulated by the National Council of Fiscal Policy (Conselho Nacional de Política Fazendária – CONFAZ).

IPI


The tax is normally charged on an ad valorem rate according to the classification of the product based upon the international Harmonized Commodity Description and Coding System (HS), administered by the World Customs Organization. Rates range from zero to a maximum of 330 percent and average about 10 percent. Luxury goods are at the high end of the tax scale.


ISS


The standard rate of ISS is 5 percent, although there are lower rates for specific services. However, rates may vary from one municipality to another.


PIS and COFINS


The standard rates of PIS and COFINS are 1.65 percent and 7.6 percent, respectively.


Are there any reduced rates, zero rates, or exemptions?


Yes.


ICMS - Tax on the circulation of goods and transportation and communication services


There is a lower, 12 percent ICMS rate levied on some specific goods and services, including:


  • farm implements and tractors, machines, industrial devices and equipment and products from the electronic data processing industry, which have been granted some incentives
  • diesel oil and hydrated ethyl alcohol fuel
  • motor vehicles
  • sand and stones
  • food products
  • transport services.

There is a lower, 7 percent ICMS rate levied on some specific goods and services, including:


  • products that are part of the basic food basket
  • products from the electronic data processing industry.

There is an extensive list of exemptions, including:


  • exporting
  • books, newspapers, periodicals, and the paper consumed in the printing of such products
  • sale of fixed assets
  • fruits, vegetables, and farm/garden produce
  • preservatives.

IPI - Tax on Industrialized Products


There is an extensive list of products which are tax exempt or zero rated, including:


  • live animals and animal products
  • plant products
  • animal and plant fat or oil
  • chemical products
  • textile products
  • shoes.

There is a list of exemptions, which includes:


  • free samples, with no commercial value
  • 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
  • gold, when seen as a liquid asset.

ISS – Tax on Services


The following services are exempt from ISS:


  • service exports
  • services rendered through an employment relationship, freelances, directors and members of the advisory or fiscal boards of partnerships and foundations, as well as managing partners and delegate managers
  • 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.

PIS (Social Integration Tax) and COFINS (Social Contribution Tax)


There is a lower rate of 0.65 percent for PIS and 3 percent for COFINS ICMS for specific goods and services, including:


  • telecommunication services
  • passenger transportation services by road, underground, railway or water
  • air passenger transportation services rendered by companies licensed to operate on domestic flights and those resulting from the rendering of air passenger transportation services by air taxi companies
  • services related to early childhood, elementary, secondary, and college education
  • sale of used cars.

There is a list of exemptions which includes:


  • exportation of goods
  • exportation of services with payment in convertible currency
  • sales of products to a commercial export company for export purpose specifically
  • sales of fixed assets.

What are the other local indirect taxes beside those mentioned above?


All indirect taxes were mentioned above.

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Registration

Who is required to register for Brazilian VAT?


Brazilian Entities


If a business makes supplies of goods and 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 it has any kind of establishment.


Non-Brazilian Entities


Foreign businesses are able to register for IPI, ICMS, ISS, PIS, and COFINS only if they have a permanent establishment (legal entity) in Brazil and they perform taxable transactions in the country. This will most likely give rise to corporate income and other local tax liabilities in Brazil.


Are there penalties for not registering or late registration?


ICMS


The penalty for failure to register a fiscal document, provided the operation has been performed in a legal manner and the tax duly withheld is R$ 119.04 per month of operation, without prejudice to all other applicable penalties.


ISS


The penalty for failure to register for the ISS is R$ 750 in São Paulo city. The penalty may vary from one municipality to another.


Is voluntary VAT registration possible for an overseas company?


No.


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 that the domestic companies are, assuming that they have established a permanent business in the country.


Does an overseas company need to appoint a fiscal representative?


Assuming that they have established a permanent business in the country, yes, the company needs to appoint a fiscal representative.

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VAT grouping

Is VAT grouping possible?


VAT grouping is possible only for the purposes of calculating and withholding contributions for PIS/COFINS.


Regarding ICMS, IPI, and ISS, it is not possible to have VAT grouping in cases of distinct companies or corporate entities. Each establishment (belonging to the same company) must calculate and withhold the above-mentioned taxes - consolidated calculations are not allowed.


Some States of Brazil allow establishments located in the same State and under the same corporate entity, to centralize the calculation of ICMS.


In Brazil, entities belonging to the same economic group but with distinct corporate identities are not allowed to calculate their taxes jointly.


Can an overseas company be included in a VAT group?


N/A

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Returns

How frequently are VAT returns submitted?


For each tax there is a specific requirement, set forth by the applicable legislation.


  • ICMS: (GIA) Information and Calculation form - monthly
  • IPI/PIS/COFINS: Declaração de Débitos e Créditos Tributários Federais (DCTF) Federal contributions and taxes statement - monthly
  • PIS/COFINS: Demonstrativo de Apuração das Contribuições Sociais (DACON) Demonstrative of Calculation os Social Contributions - monthly
  • Fiscal SPED (for ICMS and IPI): Fiscal Bookkepping - monthly

Are there any other returns that need to be submitted?


Whenever interstate operations involving goods and services take place, the tax authorities of the receiving state require that the sender of such goods or the services rendered send, on a monthly basis, electronic files containing information regarding the operations performed with that state.


A selection of tax returns, of some specific industries, has their filing more closely scrutinized by the tax authorities.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank's exchange rate applicable on the date of the invoice)


The value of the goods is converted into Brazilian currency (Real-R$) using the exchange rate (published by the Brazilian Central Bank) of the date when the import declaration (Declaração de importação – DI) is registered before the Brazilian Customs Authorities' electronic system (SISCOMEX).

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VAT recovery

Can a business recover VAT if it is not registered?


No.


Only those taxpayers who duly fulfill the legal conditions can benefit from tax credits. A right to credit is available to avoid a cumulating of taxes. Therefore, taxpayers are allowed to offset tax owed against with tax levied on each operation or installment in regards to the purchase of goods or services, provided that the appropriate fiscal document, issued by a taxpayer in good standing before the tax authorities can be provided. This rule does not apply to ISS.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


N/A


Are there any items businesses businesses cannot recover VAT on?


As general rule, goods, services or products do not generate a right to a tax credit at the time of their purchase if their outflow was tax exempt.


However, the legislation establishes exceptions for the following taxes:


ICMS:


When the incoming goods or services coming in are:


  • unrelated to the company business
  • deemed to be integrated in a product or used in a process of industrialization or rural production of a product whose sales is not taxed or is tax exempt
  • for commercialization or service rendering, when the resulting supply or the service is not taxed or is tax exempt
  • for use or consumption by the company itself - understood as goods that are not for commercialization or that are not used as part of a product or for consumption in its respective process of industrialization or rural production, or for the purpose of supplying taxable services.

IPI:


As a general rule, the inflow of raw materials that are intended for the industrial process, generates a right to a credit.


PIS/COFINS:


In general, the inflow of goods or services intended for the industrialization and goods for resale generates a right to a credit.

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International supplies of goods and services

How are exports of goods and services treated?


Goods


The Brazilian Federal Constitution establishes that goods intended for export have tax immunity (exemption).


Services


The Brazilian Federal Constitution establishes that services intended for export have tax immunity (exemption).


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.


Except for the import duty and ISS, all other taxes are non-cumulative, that is, they do generate a right to a credit. The right to tax credits follows the same rules applied on the domestic acquisition and, as a rule, goods for production or resale generate a credit right derived from those taxes.


How are services which are brought in from abroad treated for VAT purposes?


On importing of services, ISS, PIS and COFINS are paid, as well as other federal taxes (not indirect taxes), such as IOF (Tax on Financial Transactions) and CIDE (Contribution of Intervention in the Economic Domain).


This taxation is relatively recent. In fact, ISS on importation of services was established when the Complementary Law 116/03 came into effect and, soon after that, upon the publication of the Ordinary Law 10.865/04, PIS and COFINS also started to be levied on the importation of services.


There is no credit of ISS, considering that such tax is cumulative. The contributions for PIS and COFINS levied on the importation of services can be recovered, provided the service imported is applied directly on industrial processes.

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Invoices

Is a business required to issue tax invoices?


Yes


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


In the "Issuing" Box


  • the name or corporate name
  • the address
  • the city
  • the state or territory
  • the telephone and fax numbers and/or e-mail
  • the zip code
  • the Corporate Taxpayer Registry enrollment number with the Ministry of Finance
  • the kind of operation resulting from the inflow, such as: sale, transfer, return, shipping (for the purpose of demonstration, industrialization, or other)
  • the CFOP code Fiscal Code on Operations and Transactions
  • the state registration number
  • the denomination invoice
  • the kind of operation - inflow or outflow
  • the serial number of the Invoice and, immediately below it, the expression Series, when applicable, followed by the corresponding number
  • the number and destination of each copy of the Invoice
  • in the field provided for indicating the deadline for the issuance of the Invoice
  • the day of issuance of the Invoice
  • the day in which the good effectively left the company
  • the time in which the good effectively left the company

In the Box "Receiver/Sender"


  • the name or corporate name
  • the Corporate Taxpayer Registry enrolment number or the Individual Taxpayer Registry enrolment number with the Finance Ministry
  • the address
  • the zip code
  • the city
  • the telephone and fax numbers and/or e-mail
  • the state or territory
  • the state registration number.

In the box Fatura, when adopted by the sender, the information established by the applicable legislation,


In the Box "Information of the Product"


  • the code adopted by the establishment for product identification purposes
  • the description of the products, including : name, brand, type, model, series, kind, quality, and other information that allow for their perfect identification and also the number of the correspondent FCI (if applicable)
  • the fiscal classification of the products, whenever required by the legislation regarding IPI - Tax on Industrialized Products
  • the Código de Situação Tributária – CST Code of the Tax Status
  • the unit of measurement used for quantifying the products
  • the amount of products
  • the unit cost of the products
  • the total value of the products
  • the ICMS rate
  • the IPI rate, when applicable.

In the Box "Tax Calculation"


  • the tax basis for calculation of ICMS
  • the amount of ICMS levied on the operation
  • the tax calculation basis used on assessing the amount of ICMS withheld for tax withholding,
  • the amount of ICMS withheld for tax withholding,
  • the total value of the products
  • the freight cost
  • the insurance cost
  • the cost of other additional expenses
  • the total amount of IPI, when applicable
  • the total value of the invoice.

In the Box "Carrier/Volumes Transported"


  • the name or corporate name of the carrier or the expression "Self-employed", when applicable
  • the freight payment condition - if at the sender's or receiver's expenses
  • the vehicle license plate number in case of road transportation, or other indicative information, in case of other means of transportation
  • the state or territory in which the vehicle is registered
  • the carrier's Corporate Taxpayer Registry enrollment number or the Individual Taxpayer Registry enrolment number with the Finance Ministry
  • the address of the carrier
  • the City of carrier
  • the state or territory in which the carrier is domiciled
  • the state registration number of the carrier, when applicable
  • the number of volumes transported
  • the kind of volumes transported
  • the brand of the volumes transported
  • the numerical sequence of the volumes transported
  • the gross weight of the volumes transported
  • the net weight of the volumes transported.

In the Box "Additional Information"


  • In the field Additional Information - other information that matters to the sender, such as: number of the order, seller, issuer of the Invoice, place of delivery - when different from the receiver's address - in accordance with what is established in the applicable legislation, advertising, etc.
  • in the field "For the Tax Authorities leave it blank", and in case of a establishment located in the city of São Paulo, the code of the tax department to which it is related with clear indication of the expression Código do Posto Fiscal Tax Service Office
  • the control number of the form, in case of an Invoice issued through electronic data processing.

In the footnote or on the right side of the Invoice, the name, address, state registration, and Corporate Taxpayer Registry enrollment numbers with the Finance Ministry of the printer of the fiscal document; the date and amount of documents printed; the serial number of the first and last document printed and their respective series, when applicable, and the number of its authorization for printing fiscal documents.


In the product delivery receipt, that shall be part of the original Invoice as a detachable slip, there should be:


  • the acknowledgment that the products have been delivered
  • date in which the products were delivered
  • identification and signature of the receiver of the products
  • the denomination invoice
  • serial number of the invoice.

Can businesses issue invoices electronically?


The state e-invoice (NF-e) is issued electronically by a system approved by the government and consists of an electronic file containing all the fields mentioned above.


Moreover, a simplified graphic representation of NF-e, called DANFE, which contains the corresponding protocol numbers, needs to be printed in order to be sent together with the merchandise.


At last, the buyer can verify the validity of NF-e on the State government website by informing its protocol number.


The ICMS taxpayers (registered as a commercial or industrial company, exporter and/or importer) should submit, in digital files, information regarding the operations and service rendering carried out, under the terms established by the state tax authorities.


Is it possible to operate self-billing?


As a rule, self billing is not allowed. Only under specific conditions, established in the legislation, can self-billing be performed, as follows:


At the moment the good or service effectively enters the establishment


  • new or used, sent for whatever reason by a producer or individual or company not required to issue fiscal documents
  • in return, when sent by a self-employed or freelance professional to which such product had been sent for manufacturing purposes
  • in return from exposition or fair, to which it had been sent exclusively for the purpose of public exhibition
  • in return of shipment for sale outside the establishment
  • in return, when undelivered to receiver
  • imported directly from abroad
  • successfully bided for or bought in auction or biddings, promoted by public authorities.

Can a business issue VAT invoices denominated in a foreign currency?


No. The invoices must be issued in R$.

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Transfers of business

Is there a relief from VAT for the sale of a business as a going concern?


Yes.


If a company sells its business while it is in operation, then VAT cannot be levied. However, there is a requirement that the company is sold with all its assets and inventory, without any moving of such assets, otherwise taxes shall be levied.

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Options to tax

Are there any options to tax transactions?


No.

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Head office and branch transactions

How are transactions between head office and branch treated?


ICMS is levied on operations involving asset transferring from headquarters to branches, once the trigger factor is the circulation of goods. IPI is levied in case the good is industrialized. However, for this kind of operation, the legislation allows the suspension of payment of the IPI.


PIS and COFINS are not levied, as there is no revenue coming from the sale of assets or services resulting from this operation. Therefore, there is no triggering event for these taxes.


ISS is not levied, as there is no billing of services between headquarters and branch, considering that the triggering event for this tax is the rendering of remunerated services.

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Bad debt

Are businesses able to claim relief for bad debts?


Under the Brazilian legislation there is no relation between payment resulting from a commercial transaction and payment of taxes. A tax is levied on the performance of the operation, independently from the payment of the consideration. Even if the company is not able to recover all its debts related to the sale of goods or services, the legislation does not provide any benefits related to unrecoverable debts.

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Anti-avoidance

Is there a general anti-avoidance provision under VAT law?


Yes.


The Complementary Law 104 dated 10 January 2001, has added a single paragraph to article 116 of the Brazilian Tax Code (CTN), introducing, for tax purposes, the possibility of subjective interpretation of judicial acts, by the tax authorities. Consequently compliance to the law is not enough and the fact that a specific operation could be generating a lower taxation is considered.


The above-mentioned concept addresses the disregard to judicial acts when performed with the purpose of concealing the occurrence of a tax-triggering event, and therefore, a perfectly legal act could be considered nil.

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Penalty regime

What is the penalty and interest regime like?


There are several ways of penalizing companies who have failed to fulfill their obligations, either main or ancillary obligations.


Accessory obligations are those that result from the main one and whose non-fulfillment does not affect the latter.


The penalties established by law range from R$ 20 to 150 percent of the total value of the operations that have failed to be taxed, with the addition of monthly default interests charged on the amount of the debt, in case of non payment of taxes.


In this sense, for each failure of meeting an obligation there is a specific penalty.

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Tax authorities

Tax audits


How often do tax audits take place?


Some taxpayers are audited monthly, however this applies for large taxpayers. Regular taxpayers are audited in average once every five years.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Yes, as the Brazilian legislation requires that the taxpayers provide all information electronically.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes. In some situations the company can ask for a special regulation for the tax authorities, but then will have to respect its conditions.


Are rulings and decisions issued by the tax authorities publicly available in your country


Yes

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes, the VAT rules in Brazil are very specific. As examples, we can mention:


  • On sales, even if the supplier does not receive the payment from his customer, all the VAT and indirect tax should be collected and paid to the tax authorities.
  • For supply of several goods, the ICMS tax payment is attributed to the importer or manufacturer as responsible for the tax due on operations that will occur subsequently. This transfer of responsibility for the tax payment is known as taxpayer substitution regime.
  • The VAT taxation in Brazil is based on physical movement of products, not only on sales. For example: if one company has two different establishments and transfer goods between them, VAT is collected by the sender and is offset as a credit by the recipient.

Are there indirect tax incentives available in your country? (e.g. reduced rates, tax holidays)


Yes, in Brazil there are several tax incentives.


Certain supplies are exempt from ICMS, for example supplies of books, newspapers and the paper consumed in the printing of such goods, sale of fixed assets, fruits, vegetables, and farm and garden produce and preservatives.


The reduced IPI rate of 0 percent applies to, for example, live animals and animal products, plant products, chemical products, textile products and shoes.


Certain supplies are exempt from IPI, for example 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.


There are reduced rates of ISS which vary from one municipality to another. Certain supplies are exempt from ISS, for example 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, for example the exportation of goods, the exportation of services with payment in convertible currency, sales of products to a commercial export company for export purpose specifically and sales of fixed assets.


Finally, some Brazilian states grant ICMS benefits (reductions and exemptions) for new business.

 

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