What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Free trade zones: In Manaus Industrial Park, the government grants land for a nominal value, with available infrastructure such as water supply and water and sewage treatment, urban transportation and telecommunication facilities;
Regional development incentives: Enterprises in the Northeast and in certain states in the Midwest and Southeast can benefit from federal, state and municipal benefits;
Benefits granted for the export of goods and services;
Special regime for the information technology export platform;
Special regime for the purchase of capital goods by exporters;
Incentives for technological innovation;
Incentives for information technology and automated products;
Incentives for the development of infrastructure;
Technological development of semiconductors;
Modernisation of Brazilian ports;
Incentives for educational activities;
Special tax regime for exporting companies;
Special tax regime for small businesses; and
Special tax regime for the Brazilian aviation industry.
Answer ... Brazilian law does not provide for any relief or tax benefit for corporate reorganisations or intra-group transfers of companies or assets. Any disposition of assets or rights in Brazil, including by virtue of merger or spin-off, is potentially subject to taxation. However, depending on the price attributed to the asset and the corresponding cost basis, the transaction may not trigger any taxation. As an example, where merger transactions are based on the book value of the assets and liabilities, no taxes shall be levied on the merged entity.
Answer ... Legal entities with a total annual gross revenue of over R$78 million and legal entities in certain fields of activity must calculate corporate tax (IRPJ) and social contribution on net profits (CSLL) based on the real profits system, and may not opt for the deemed profits system (see question 1.3). These systems differ in the method of calculating taxable profits, as described below.
Under the real profit system, taxable profits shall be based on the legal entity’s accounting profits, adjusted by some inclusions and exclusions provided by the law. It shall be calculated from a balance sheet drawn up in December, covering the results for the entire year; but the tax must be pre-paid monthly. Such payments can be reduced or suspended if the legal entity has paid more in taxes on accumulated profits for the period than was actually due, according to the rules for annual calculation.
Under the deemed profit system, the taxable basis is calculated by using a fixed percentage of the gross revenues of the company (8% for the sale of goods; 32% for the provision of services). Specific gains, such as capital and financial gains, must be added to the taxable base.
Under the deemed profits system, legal entities account for revenues, costs and expenses on an accrual basis, but taxes are paid on a cash basis. Under the real profit system, legal entities may choose whether to recognise foreign exchange variations on a cash or accrual basis for tax purposes.
Answer ... Brazilian tax law requires legal entities to recognise assets, liabilities, revenues, costs and expenses in Brazilian currency. If a legal entity has adopted another functional currency for corporate purposes, it must prepare, for tax purposes, accounting books based on Brazilian currency. This provision may require the legal entity to convert each item in the financial statement into Brazilian currency based on the exchange rate applicable on the day when the relevant item was accounted for.
Answer ... Sales of intangibles are subject to capital gains rules, which means that legal entities must pay IRPJ and CSLL on the positive difference between the sale price and the acquisition cost. The acquisition cost usually corresponds to the book value of the intangible, which comprises the price paid for the intangible or the cost incurred to generate the intangible internally, reduced by annual amortisation, if applicable. As mentioned in question 1.4, the gain is included in the ordinary taxable income of the legal entity in the relevant period; if the costs and expenses incurred in that specific period exceed the revenue (including the revenue derived from the sale of shares), no income taxes will be paid.
In the case of business combination transactions that take the form of a share deal, Brazilian accounting and tax regulations require the allocation of the purchase price to identifiable intangible assets of the target, if any. Upon the merger, the portion of the purchase price allocated to intangibles in the financial statements of the acquirer must be allocated to the corresponding intangible item in the financial statements of the surviving entity. Such portion will be subject to amortisation if the corresponding item is also subject to amortisation.
Answer ... Yes. Social security contributions paid by a legal entity are deductible for IRPJ and CSLL purposes, including those paid to private pensions.
Answer ... Yes. There are two main possible variations, depending on the sector in question: limitations on the choice of taxation, where applicable, and entirely different taxes (contributions and levies) based on the specific industry.
In certain industries, the available choices in how tax is applied may be restricted by special regulations and additional requirements regarding existing taxes. Such special regulations include:
- limits on the choice of income tax method (financial institutions may only choose the actual profits regime);
- limits on the choice of turnover tax crediting system (telecommunication services are subject exclusively to the Social Integration Programme/Social Investment Fund regime); and
- exceptional rules on the application of the various forms of value added tax levied at each level of the federation (eg, specific services are subject to value added tax on goods and services, although they would otherwise fall within the scope of service tax).
Other industries are subject to specific contributions and levies, which may or may not be under the administration of the Federal Revenue Service. Examples include:
- the Fund of Universalization of Telecommunication Service (FUST)/Fund for the Technological Development of Telecommunications (FUNTTEL) contribution, levied on the provision of telecommunication services and applied at a combined 1.5% rate on the gross revenues of the telecommunications services provider; and
- the Contribution for the Development of the National Movie Industry levy, which is due by establishments that broadcast or play audiovisual works subject to IP rights in a public place.
Finally, for certain widely applicable taxes, specific taxable events are provided for by law that in practice take place only in the context of specific industries. For instance, several provisions regarding the tax on financial transactions set specific rates for insurance, loans, international freight and so on.
Answer ... Yes – for example:
- the surcharge on value added tax on goods and services, which funds the Poverty Combat Fund; and
- the contributions for intervention in the economic domain (CIDE), which serve as a surcharge on turnover tax in specific circumstances that require emergency funding (eg, FUST/FUNTTEL funds the universalisation of telecommunication services and their technological development; while CIDE – Fossil Fuels funds transport infrastructure development programmes).
There is no corporate net wealth tax in Brazil and there are no taxes on remittances other than any applicable withholding taxes, turnover taxes on imports, service tax on imports of services and the tax on financial transactions on foreign exchange transactions.
Answer ... There are no deemed deductions against corporate tax for equity. Equity gains and losses are not subject to taxation at the level of the shareholders.
However, interest is payable on equity to shareholders at pre-determined maximum rates (the long-term interest rate fixed by the National Development Bank) – known as interest on net equity (JCP). JCP is deductible from the IRPJ and CSLL of the paying entity and taxable at the level of the shareholders.