Points You Need To Understand About The Tax System To Invest In Brazil

Compared to other countries, Brazil is considered to have a complex tax system. Therefore, foreign investors should be aware of the different federal, state and municipal taxes when planning to set up a company in the country. 

Often, the audit and review service in Brazil makes it possible to identify errors in the payment of taxes, either due to lack of discharge or due to undue payments. 

However, when the audit has not yet been carried out, the most important thing is to understand the tax system applied to each and every company incorporated in the South American nation. 

As audit and review experts in Brazil, we will explain more about the main corporate taxes in this article. Follow up! 

Taxation for foreign companies

Companies residing in Brazil may be subject to taxation on their worldwide income. Non-resident organizations are taxed on their income of Brazilian origin, through:

• Branch
• Subsidiary
• Registered permanent enterprise.

In addition, as with Brazilian companies, non-resident companies may also have to pay IRRF (withholding tax) on income of Brazilian origin.

Taxation of Capital Gains

The tax treatment of capital gains is very similar to the treatment of ordinary income. Capital gains received by a non-resident in an investment registered with the Central Bank are subject to progressive taxation, for example;

• 15% up to BRL 5 million
• 17.5% between BRL 5 million and BRL 10 million
• 20% between BRL 10 million and BRL 30 million
• 22.5% on BRL 30 million or over.

Normally, the 25% tax rate is applicable in the case of gains made by a resident of a tax haven.

Municipal, state and federal taxes

Investors who intend to open a business in Brazil should know the main municipal, state and federal taxes to be paid by the company incorporated in the country. 

Municipal taxes

• Municipal Tax on Services (ISS): The rates vary between 2% and 5%, depending on the service, and are charged cumulatively. 
• Municipal Property Tax (IPTU): Tax with annual collection, whose value is calculated based on the market value of properties in urban areas. 

State Taxes

• ICMS: State Goods and Services Tax

Federal Taxes

• Tax on Financial Transactions (IOF): levied on financial transactions such as foreign exchange transactions, loans, among others. The applicable rate varies depending on the transaction, and it is normally set at 0.38%
• Social Integration Program Tax (PIS): federal social contribution calculated at the rate of 1.65%.
• Contribution to Social Security Financing (COFINS): rate of 7.6%. In short, it is the monthly federal social security contribution, calculated as a percentage of revenue.
• Import Tax: rates range from 10% to 20%, with a maximum percentage of 35%.
• PIS and COFINS on imports: rates of 1.65% and 7.6%, respectively, on imports of services. Taxes of 2.1% and 9.65% on imports of goods, respectively;
• Social Security Contribution (INSS): levied at the rate of 20% on the employees’ payroll;
• Guarantee Fund for Length of Service (FGTS): 8% rate levied on the employee’s salary.

Tax Audit and Review

Publicly held companies subject to the control of the CVM (Brazilian Securities and Exchange Commission) must publish financial statements annually. In addition, it is necessary to publish a report by independent auditors. 

Financial statements include records such as the balance sheet, the income statement, a statement of retained earnings or accumulated losses. In addition, the company must submit a statement of cash flows, added value and notes to the statements.

Audited financial statements must be submitted annually to the CVM, or appropriate government agency, if the company is a public utility.

In the case of companies involved in banking, leasing or insurance activities, the audited statements are submitted to BACEN and other regulatory agencies, if necessary. 

It is important to highlight that the impartiality and credibility of the audit in the documents is relevant for the competent authorities. Therefore, Europartner offers this service, performed by an experienced team of accountants, focused on auditing and review in Brazil.

To learn more about this service and many others for you to open your company in Brazil, contact us and talk to our experts!