Answer ... Brazil has a vast and complex taxation system, comprising federal, state and municipal taxes. The number of taxes and governmental levies is extensive. Although the government and the Congress are attempting to simplify and streamline taxation in Brazil, an extensive body of tax regulations remains in force. The main taxes are as follows:
- income tax (individuals, corporate and withholding);
- social contribution on net profits (CSLL);
- import duties;
- export tax;
- federal excise tax;
- tax on financial transactions;
- rural property tax;
- contribution to the Social Integration Programme (PIS);
- contribution to the Social Investment Fund (COFINS);
- contributions for intervention in the economic domain; and
- certain taxes on labour relations.
- value added tax on goods and services;
- gift and estate tax; and
- tax on the property of vehicles.
- service tax;
- real estate property tax;
- real estate transfer tax; and
- municipal fees.
Some of these taxes may be calculated using different methods, depending on the tax regime, the taxpayer or the nature of the triggering transaction.
Answer ... The corporate income tax rate for Brazilian legal entities is 15%. A surcharge of 10% is applicable for taxable income exceeding R$240,000 (US$65,000) per year or R$20,000 (US$5,400) per month in case of base periods shorter than one year (the acronym ‘IRPJ’ designates both the corporate income tax and its surcharge). CSLL is generally due at a rate of 9%, or 15% for financial institutions and insurers.
Legal entities are also subject to social contributions on gross revenue of any kind, with a few exceptions provided for in the tax legislation (PIS and COFINS). Depending on the system of taxation adopted by the taxpayer, these contributions may be levied at a combined rate of 9.25% or 3.65%.
Answer ... The Brazilian tax system is made up of several different taxes, each with its own tax base.
IRPJ and CSLL, for instance, are levied on corporate income and may be calculated under two main systems. The first is the real profits system, whereby IRPJ and CSLL are computed on adjusted net income. The second is the deemed profit system, whereby IRPJ and CSLL are levied on a percentage of gross revenues that varies in accordance with the activities carried out by the legal entity.
Regarding the social contributions on gross revenue, under the non-cumulative system, these contributions are levied at a combined rate of 9.25% and the taxpayer is allowed to register specific tax credits. Under the cumulative system, the contributions are levied at a combined rate of 3.65% without any right to discount credits.
Another example concerns state and municipal value added tax (ICMS and ISS), which are levied on the price of the transaction indicated in the corresponding invoice.
Answer ... Not under the real profits system, whereby all kinds of income (eg, gains, financial income) are included in the ordinary taxable income of the legal entity in the relevant period. If the costs and expenses incurred in a specific period exceed the revenue (including the revenue derived from the sale of shares), no income tax will be payable. Exceptions to this rule are dividends received from Brazilian entities, which are exempt from taxation, and income derived from activities carried out in the SUDAM (Superintendency for the Development of the Amazon) and the SUDENE (Superintendency for the Development of the Northeast region) regions.
Under the deemed profit system, legal entities must divide their income into the corresponding categories. Gross revenue derived from business activities is taxed under the so-called ‘presumption percentage', which means that a specific percentage provided by law is applied in order to assess the taxable income. Other income derived from gains, financial transactions and so on must be added to the taxable income, and the IRPJ and CSLL rates are applied to this sum.
Answer ... IRPJ and CSLL are levied on a worldwide basis. The profits of branches of Brazilian companies, and of foreign controlled or affiliate companies, are subject to taxation on 31 December of each calendar year, irrespective of distribution. Other income and gains earned directly by a Brazilian company abroad (eg, income or gains derived from financial investments) are also subject to taxation on 31 December.
Taxes paid abroad on profits, income and capital gains can generally be offset against IRPJ and CSLL, up to the limit of the Brazilian tax charged on such profits, income and gains.
The source of the income is generally not relevant in determining the applicable tax, with a few exceptions such as governmental subsidies to encourage the establishment and expansion of economic enterprises and governmental donations, as provided by the law.
Answer ... Tax losses may be carried forward indefinitely, provided that the offsetting does not exceed 30% of the taxable profits in any given period. Tax losses may not be carried back. Generally, non-operating tax losses (ie, negative results from the disposal of permanent assets) may only be offset against non-operating profits, subject to the 30% limit.
Tax losses accrued by foreign controlled or affiliate companies cannot be offset against profits accrued in Brazil. However, they can be offset indefinitely against the taxable income of the foreign controlled or affiliate company.
Answer ... Except for the purposes of the Brazilian thin capitalisation rules, Brazil has not incorporated the concept of beneficial ownership. Thus, for all tax purposes, the legal owner is deemed to be entitled to an asset and/or income. However, where there is evidence of fraudulent conduct to reduce taxation, the authorities may disregard the formal owner to reach the person that actually incurred a taxable gain.
Answer ... According to the equitable taxation principle, whenever possible, taxes are personal and are graduated according to the economic capacity of the taxpayer. The progressive rates applicable to individuals (from 0% to 27.5%) are an example of a mechanism used by law to grade taxation according to the taxpayer’s capacity. For legal entities, the law provides for the imposition of an additional 10% of IRPJ on legal entities whose monthly profits exceed R$20,000.
Answer ... As a rule, only legal entities are subject to corporate taxation. However, in certain circumstances Brazilian law allows certain individuals and activities to be treated as legal entities for the purposes of corporate taxation. Examples include the following:
- legal entities which perform their activities in Brazil, whether regularly or irregularly incorporated;
- branches, representations, commission merchants and agents appointed by foreign companies, as provided by the law;
- single-person legal entities, as defined by the law;
- cooperatives formed with the sole purpose of purchasing and supplying goods to consumers; and
- silent partnerships (SCPs) (the ostensible partner must calculate the taxable profits of the SCP separately from the taxable results of other business it performs, and tax losses accrued by the SCP cannot be offset against the taxable profits of the ostensible partner).