Brazil: Service Tax In Brazil

Brazil currently has 5,570 municipalities spread out over 27 federated units, including the Federal District. And article 156, item III, of the Federal Constitution provides that such municipalities have taxing powers to implement a levy on services. See the excerpt below:

"Art. 156. The Municipalities have the power to implement levies on:


III - services of any nature not listed in art. 155, item II, defined in supplementary law.


In this context, following the constitutional text, the municipalities - and the Federal District - may implement and collect a tax on an activity comprised of features that qualify such activity as a service, provided that service is not taxable by ICMS (i.e. interstate and intercity transport service and communication service) and is also mentioned in a supplementary law.

Following this trend, Supplementary Law nº116/03 ("LC n.º 116/03") was enacted. It provides in article 1 that "the Tax on Services of Any Kind, subject to the power of municipalities and the Federal District, has as taxable event the rendering of services provided for in the list attached hereto, even if such services are not the core activity of the service provider."

Therefore, ISS shall only be levied upon service provision and provided, however, that such service is expressly included in the list attached to LC n. 116/03.

In contrast, the leading paragraph of article 3 of LC n.º116/03 sets as the rule that a service is considered to be rendered and ISS payable to the municipality where the service establishment is located.

Therefore, as a rule, ISS is payable to the municipality where the service establishment is located.

It is also important to note that art. 4 of LC n.º116/03 provides that "'service establishment' is considered to be the place where the taxpayer carries out the rendering of services on a permanent or temporary basis and that is an economic or professional unit, whereas it is irrelevant, for characterization purposes, whether it is denominated as head office, branch, agency, service bureau, affiliate, representation office or contact office or any other denomination that it might use."

Nevertheless, we emphasize the existence of exceptions provided for in art. 3, items I to XXII, mentioned above, on which ISS should be paid to the municipality where the service is rendered, and the location of the service provider will not matter for this purpose either.

In fact some of such circumstances - among other existing situations - in which ISS is payable to the municipality of the place:

  • of storage, deposit, loading, unloading, arrangement and safekeeping of the asset, in case of storage, deposit, loading and unloading, arrangement and safekeeping of assets of any kind.
  • of the performance of the work, in case of: (1) performance, for management, contracted work or sub-contracted work services, of civil construction, hydraulic, or electrical works and the like, including welding, well drilling, excavation, draining and irrigation, earth moving, paving, concreting, and products, parts and equipment assembly and installation (except supply of goods manufactured by the service provider out of the place where the services are rendered, the supply of which is subject to ICMS) and (2) follow-up on and inspection of the performance of engineering, architecture and urbanism works.
  • of buildings in general, roads, bridges, ports and similar facilities, except for repair, upkeep and remodeling of buildings, roads, bridges, ports and similar facilities (except for the supply of goods manufactured by the service provider out of the place where the services are rendered, which is taxable by ICMS);
  • of the assets or the domicile of the persons under surveillance, being secured or monitored, in case of surveillance, security or monitoring of assets and persons;
  • of the installation of scaffolds, stages, canopies and other structures, in case of assignment of scaffolds, stages, canopies and other structures for temporary use;
  • of the demolition, in case of demolition services;
  • of the sweeping, collection, removal, incineration, treatment, recycling, separation and final disposal of garbage, waste and any other residue, in case of sweeping, collection, removal, incineration, treatment, recycling, separation and final disposal of garbage, waste and any other residue;
  • of the cleaning, maintenance and upkeep of public streets and public places, real properties, chimneys, pools, parks, gardens and the similar, in case of cleaning, maintenance and upkeep of public streets and public places, real properties, chimneys, pools, parks, gardens and the similar;
  • of the decoration and gardening, cutting off and pruning of trees, in case of decoration and gardening, including the cutting off and pruning of trees;
  • of the control and treatment of effluent of any kind and physical, chemical and biological agents, in case of control and treatment of effluents of any kind and of physical, chemical and biological agents;
  • of the forestry, reforestation, seedling, manuring and the similar, in case or forestry, reforestation, seedling, manuring and the similar;
  • of the performance of propping and shoring services and the similar, in case of propping, shoring and similar services;
  • of the cleaning and dredging, in case of the services described in case of cleaning dredging of rivers, ports, canals, bays, lakes, ponds, dykes, dams and the similar; and
  • where assets are kept or parked, in case of the services described in the keeping and parking of land motorized vehicles, aircrafts and vessels.

Accordingly, it is extremely important that service providers subject to ISS taxation consider the aforementioned aspects (nature of the services, rendering of the services in the list attached to LC nº 116/2013 and the municipality with taxing power to collect ISS), because even if the service is taxable by ISS, should it be paid to an inappropriate municipality, it could result in tax assessment notices issued by the municipality that is has the relevant taxing power instead.

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