Welcome Introduction

As one of the world's leading commodity and natural resources producers, Brazil has been a player on the world stage.

The new Oil & Gas discoveries have increased the optimism and investments in this sector. It is within this context that Brazil is consolidating its image as one of the preferred destinations for foreign investments, increasing the participation of major players and interest of newcomers, capable of participating in important alliances with international petroleum exporters and capable of alleviating pressure on price highs as a result of the length of its coastline and the potential for its reserves, which total around 14,000 million barrels in 2010, according to the Brazilian Agency for Petroleum, Natural Gas and Biofuels (ANP).

Such new discoveries, specially in the pre-salt area located off the coast, are considered as the largest discoveries in the world since the year 2000 and the largest discoveries in the West since 1976. Market analyses made by KPMG Oil & Gas Center of Excellence have revealed that the present capacity of the Brazilian Oil & Gas industry represents only 3% of what it will be in 25 years. The projections show that the sector in Brazil should double its size on every five or six years.

Based on the National Petroleum, Natural Gas and Biofuel Agency (ANP), the Oil & Gas industry has grown by more than 300% since 1997, which means that the sector's contribution to the GDP has grown from 2.75% to around 10% in 2006. For the period from 2006 to 2010 the investments that have been reported to ANP by the current concessionaires total US$ 33.8 billion, a figure that may grow considerably as a result of the discoveries.

Within this scenario, Brazil has become one of the most attractive countries for investments in the Oil & Gas sector and a number of much larger investments have been already announced by major players. Due to that, it has been noticed an increasing volume of M&A activity, as well as an unprecedent presence of newcomers starting operating in different levels of the supply chain.

Oil & Gas industry in Brazil

Oil & Gas industry in Brazil is regulated by Law 9,478/97 and ANP, which is responsible for regulating, contracting and supervising the activities of exploration, development, production, refining, distribution and retail.

According to the mentioned legislation, activities related to the Oil & Gas industry in Brazil should be, in principle, performed exclusively by the Federal Government. It is also stated in the law that private entities may develop such activities by way of concession agreements, authorizations or production share regime contract.

As a general rule, O&G contracts in Brazil are usually based on concession agreements, which require industry players to incorporate a local entity to carry out activities in Brazil. Periodically, ANP promotes bidding rounds – also known as Brazil Rounds – for companies intending to participate in public concessions for the exploration, development and production of Oil and Natural Gas. In general, the public bidding stipulates eligibility requirements, usually involving tax clearing certificates and local content policy, for instance.

It is important to outline that companies involved in O&G contracts are subject to Governmental takes, a compensation due by companies for the exploration of the O&G. Currently, there are four types of Governmental takes foreseen in Law 9,478/97: (i) Signature Bonus; (ii) Royalties; (iii) Special Participation; and (iv) Area Retention Tax. In addition, it is also important to note that concession agreements have been stipulating an obligation to invest 1% of the gross revenues in Research & Development. This issue is also found in the "Tax overview" section.

Local Content

O&G industry is an extremely competitive sector with an increasing demand of goods and services to support the development of its projects, a characteristic that pushes O&G players to search for prices and resources in the international market. In order to foster the development of the local industry and mitigate an excessive use of resources from international suppliers, governments may impose a local content policy, in which O&G players are required to acquire goods and contract services from local suppliers and service providers.

Local content requirement in Brazil is currently regulated by Resolution 36/07 of the Ministry of Mines and Energy.

In practical terms, the public bidding rounds stipulate a minimum percentage of local content. The percentage of local content utilized by each bidder may be an aspect to be considered by the government authority to rank the bidding companies in the round.

After each bidding round, the percentage of local content utilized by the winner of the bidding process is included in the concession contract. The non-compliance with the agreed local content shall give cause to fines established in the concession agreements.

In general terms, local content may be measured by the proportion between the sum of values of the goods and services acquired, direct or indirectly, by the concessionaire from a Brazilian source and the total amount of goods and services acquired related to the whole operation.

The minimum percentage for local content was firstly required in the 5th and 6th rounds with different percentages according to where the blocks were located: ground, shallow waters or deep waters. As from the 7th rounds, the minimum requirements were expanded for a list of itens for exploration and development phase.

It is important to note that the local content policy is relatively new in Brazil and has suffered several modifications in the last years. Due to that, investors shall take proper attention to the compliance of local content policy which is one of the key drivers when doing business in the O&G industry in Brazil.


In the year of 2007, Brazilian Government announced the discovery of a deep-sea field of large oil and gas reserves. This area has been named Pre-Salt, considering its location about 7 Km below the sea bed, under a series of layers of rock and salt.

This announcement has been very commented in the global community, emphasizing the impact of this new resource for the Brazilian economy.

Because of the significance of these reserves, the Brazilian government has been studying a potential change in the exploration and production (E&P) model adopted up to now. Several discussions have arisen regarding the current contracting practices and royalties distribution in this industry and it is still uncertain what should be the extent of the changes that may come up in the next years.

Based on a change in the Law 9,478 made in 2010, the exploration, development and production of oil and gas shall be carried out through concession agreements or through the production share regime in the pre-salt and strategic areas.

How to invest in Brazil

Brazil's rapidly growing economy, in addition to the Brazilian tax law, which is considered firm, create an attractive environment for investors, and with careful planning, companies and funds can take advantage of several benefits of choosing Brazil for its investments.

Setting up the business

Foreign investors may enter the Brazilian market directly through a branch or a subsidiary or through third parties by means of distribution and sales representation activities. Exploration and production activities usually require the incorporation of a local company, because, for example, of the concession bidding rounds rules. On the other hand, the decision on whether to establish a local company for the suppliers of the O&G chain would depend on a variety of factors, such as, comparison between the costs associated with import of goods and services versus the local operation, as well as, local content requirements.

In most cases, distribution and sales representation save costs when compared to the incorporation of a local company. However, these alternatives may be accompanied by a lack of control of the foreign investors over the way third parties distribute or sell their products in Brazil and deal with their trademarks.


In general, foreign investors tend to incorporate a subsidiary rather than set up a branch in Brazilian territory due to the following: (i) the shareholders are not responsible for the Brazilian subsidiary's debts, except for specific provisions set forth by corporate, tax, labor and bankruptcy rules, and (ii) the process of establishing a subsidiary in Brazil is fairly simple and much less time consuming when compared to establishing a branch.

Laws regulating the formation of legal entities in Brazil are applicable to foreign and Brazilian entities or individuals in substantially the same manner.

Nonresident individuals or legal entities may adopt any type of legal entity recognized by Brazilian legislation, being the more common strutures, the Limitadas (Limited Liability Companies) or SAs (Corporations).

Limitadas (Limited Liability Companies)

The articles of incorporation of a Limitada follow the form of a partnership contract, requiring at least two investors. Nevertheless, it is considered an entity that is separate from its quotaholders. Nonresident quota holders must grant a power of attorney to a representative in Brazil to receive service of notice and act on their behalf at quota holders' meetings.

The corporate capital, which must be denominated in Brazilian currency, is divided into quotas with fixed or different unit values as specified in the articles of incorporation. In this regard, the responsibility for the payment of any corporate obligation is limited to the quotaholder's participation.

Recently Brazilian government introduced the limited liability company, in which it is possible to have just one single investor (EIRELI, or empresa individual de responsabilidade limitada), to be in force as from January, 2012. This legal entity should have a minimum amount of 100 times the Brazilian minimum wage as capital (current minimum wage at R$ 545.00).

Regular independent audits are required for Limitadas which holds total assets higher than R$ 240 million or accrued annual gross revenues higher than R$ 300 million.

SAs (Corporations)

The organization and operation of an SA is governed by the Law 6,404/76 and it was designated to stimulate the development of the Brazilian capital market and to provide additional protection for minority shareholders.

The SAs may be either publicy or private held, depending on whether their securities are accepted for trading in the securities market.

The corporate capital is divided into negotiable shares which are indivisible in relation to the company. In this sense, shares can be ordinary (essential rights of a shareholder, especially in respect to participation in the company's results and right to vote in the company's general meeting) and preferred (preferential rights with respect to dividends and/or reimbursement of capital, however with no right to vote in the company's general meeting).

The shareholder's responsibility is limited to the value of shares held.

In addition, as a general rule, legal entities incorporated as SAs are required to follow publicity rules and are obliged to carry out regular independent audits.


In addition to subsidiaries, foreign investors may also enter the Brazilian market directly through a branch.

In general, the O&G industry does not operate through a branch because of the lengthy process of incorporation and the need of authorization from the Ministry of Development, Industry and Commerce.

It is important to bear in mind that a branch is subject to Brazilian law and courts with regards to its business and transactions carried out in Brazil.

FIP – Investment Fund in Participations

Fundo de Investimento em Participações or "FIP"is a feasible and efficient investment vehicle in Brazil. It is not a legal entity but a pool of resources, incorporated by investors as co-ownership, aiming at investing in securities. As a matter of fact, a FIP is only permitted to invest in shares, debentures, subscription bonuses and other securities convertible into shares issued by corporations ("S.A.").

The advantage of using the FIP structure investments in Brazil is that (i) this investment vehicle is not subject to taxation in Brazil; and (ii) its distributions to foreign investors are not subject to withholding income tax either, provided that the following requirements are met:

  • None of the investors are located or residing in low tax jurisdictions.
  • One single investor cannot alone, or in conjunction with its related parties, own more than 40% of the total quotas (akin to shares conceptually) issued by the FIP.
  • One single investor – solely or along with its related parties – cannot have the right to receive 40% or more of the total income and proceeds distributed by the FIP.

Consortiums (JV Agreements)

The E&P agreements are usually structured as consortiums in Brazil. The consortiums are not regarded as legal entitites and involve a specific project, for a pre-determined period of time while maintaining the corporate autonomy of each party of the consortium.

The consortium is regulated by arts. 278 and 279 of Brazilian Corporate Law (Law 6,404/76) and is managed by one of the entities, designated as the lead-company, which will be responsible for the accounting records, bookkeeping and safekeeping of documents that evidence the consortium operations.

The company's responsibility for the consortium's operations is generally defined in the agreement. In this regard, it is a common practice to stipulate the company's responsibilities in the same proportion to their participation in the consortium. Thus, in principle, companies do not share joint responsibility for consortium's operations from a corporate perspective. New rules of joint withholding tax responsibility were introduced for cases where the consortium fails to collect the withholding taxes levied on services contracted by the own consortium.

Because of the limited provisions in the Brazilian corporate law, there is some flexibility to define the terms of the consortium agreements which shall define the contribution of each party, share of revenues or production, costs and other operational aspects of the parties' relationship.

Repatriation of Profits and Investment Proceeds

Brazil's tax system provides strategies that a foreign investor can find useful in structuring its investment in Brazil.


Dividends paid to foreign shareholders are exempt from withholding tax. Dividends may be paid out of net accounting income (after taxes) for the year or profit reserves.

Interest on Net Equity ("INE")

Another option for remitting income to foreign shareholders is the Interest on Net Equity, which is a hybrid remuneration with characteristics resembling both interest and dividends.

INE is calculated by applying the long-term interest rate (TJLP- Taxa de Juros de Longo Prazo) to the Brazilian entity's adjusted equity (accounting value, adjusted for the increases and decreases to equity during the year).

Deductibility of INE is limited to the greater of: (1) 50% of the net accounting income (before corporate income tax), and (2) 50% of retained earnings and profit reserves. The applicable tax to foreign shareholders receiving INE payments is a withholding tax of 15% (or 25% for recipients located in a low tax jurisdiction).


Remittances of interest to foreign parties are subject to 15% withholding tax (or 25% for recipients in low tax jurisdictions).

It should be noted that Brazil has thin capitalization rules (generally 2:1, or 0.3:1 for low tax jurisdictions, for the debt to equity ratio) and transfer pricing rules. Both rules may apply on interest payments, and in this case, the non-deductible excess amount is added back for corporate income tax purposes (disallowed) and may not be carried forward.

Capital gains

Nonresidents' capital gains deriving from a sale of an asset located in Brazil, including shares in a Brazilian company, are subject to withholding income tax at 15% (25% if the seller is located in a listed low tax jurisdiction). In case of a sale between two non-residents of an asset located in Brazil,the representative of the nonresident buyer is responsible for withholding and paying the Brazilian tax on capital gains.

Foreign Exchange Controls

All foreign exchange transactions must be contracted with an authorized agent (normally a private financial institution authorized by the Central Bank to operate in the exchange market). Most foreign exchange transactions do not depend on Central Bank's pre-approval or approval, which make the exchange operation process simple and straightforward.

Foreign direct investments in Brazil must be registered with the Brazilian Central Bank (RDE-IED). Their proper registration is very important in enabling the future repatriation of capital and remittance of dividends, interest on equity, and capital gains. Foreign investors that make certain financial investments in the Brazilian financial and capital market (e.g. FIP and FII) are also required to register such investments in an electronic Central Bank registration system, the so-called RDE-Portfolio.

In addition to that, most cross-border financial transactions such as loans, rentals, leases, as well as agreements involving transfer of technology (royalties, know-how, technical assistance, etc.), should be also subject to Brazilian Central Bank's online electronic registration system RDE-ROF (Registro Declaratório Eletrônico de Operações Financeiras) in order to allow future remittance to funds abroad in connection to such agreements.

Tax Overview


The Brazilian tax system is based on the principle of strict legality and its main principles are defined by the Federal Tax Code of 1966 and by the Federal Constitution of 1988. Three jurisdictions and tax collection levels are defined by tax legislation. Thus, taxes may be levied by the federal, state and municipal governments.

On the other hand, there is a separation of jurisdictions and powers between the judiciary and the administrative boards for the judgment of controversies. A tax matter is usually analyzed at the administrative level before the judiciary.

The federal tax system is managed by the Receita Federal do Brasil (RFB), which is part of the Ministry of the Economy (Ministério da Fazenda). States and municipalities have similar agencies.

Corporate taxation

Federal corporate income taxes

Brazilian tax legislation does not foresee specific provisions for companies involved in the Oil & Gas industry from an income tax perspective.

There are two income taxes in Brazil: the corporate income tax (IRPJ – Imposto de Renda das Pessoas Jurídicas) and the social contribution tax on profits (CSLL – Contribuição Social sobre o Lucro Líquido). They are charged on similar bases.

Profits, income and capital gains earned worldwide are subject to Brazilian corporate income taxes. There is no distinction made as to the origin of the capital (i.e. whether the investors are foreign or domestic).

Branches of foreign companies, although rare, are generally taxed in the same manner as standalone subsidiaries. A company is, in principle, considered resident in Brazil if it has been incorporated under Brazilian corporate law and is domiciled in Brazilian territory.

In addition, Brazilian law requires the company's effective management to be in Brazil. Please refer to permanent establishment issues in the chapter on International Tax Matters.

The two main methods to calculate corporate income tax and social contribution tax due on profits foreseen by legislation are: actual profit and presumed profit.

Corporate income tax (IRPJ)

Brazilian corporate income tax is charged on net taxable income. It applies at a basic rate of 15%, plus a surtax of 10% on annual income that exceeds R$ 240,000.00 per year or R$ 20,000.00 per month.

Social contribution tax on profits (CSLL)

This tax was introduced to fund social and welfare programs and is paid in addition to the corporate income tax.

CSLL is also a tax levied on net taxable income and is applied at a rate of 9%. It is not deductible for corporate income tax purposes. CSLL's tax base is similar to the tax base of the corporate income tax, although some specific adjustments may be applicable to one tax and not to the other.

Actual profit system

Under the actual profit system, net taxable income corresponds to the company's net book profit, adjusted by certain inclusions and deductions provided by the Brazilian legislation.

Deductible expenses are generally all items related to the ordinary business of a company, properly documented and which are necessary to maintain its source of income.

Tax losses

Under the actual profit system, companies may accrue tax losses to offset with its future taxable profits. In this regard, it is important to outline that there is no tax consolidation in Brazil and, therefore, it is not possible to offset tax losses from other group companies.

The main aspects in connection to tax losses that should be considered are the following:

  • Tax losses may be carried forward indefinitely.
  • The offset is limited to a maximum 30% of annual taxable income.
  • No carry back of losses is allowed.
  • Non-operational losses may be carried forward, but they may only be utilized to offset non-operational profits (e.g., capital gains).
  • Tax losses are lost if there is a change in a taxpayer's control and type of activity between the time the losses are generated and the time they are utilized.

Presumed profit system

Brazilian companies may elect to compute corporate taxes based on presumed net profits, provided they (a) do not have total revenues in the preceding year higher than R$ 48 million, (b) are not financial institutions, similar entities or factoring companies, (c) do not earn foreign profits, income or gains (i.e. directly or through foreign subsidiaries) and (d) do not qualify for an exemption or reduction of the corporate income tax.

The election is made annually, at the beginning of the year and the choice may be renewed every year. The election is valid for both corporate income tax and social contribution tax on profits. The presumed profit is measured by applying a certain predetermined percentage, which varies according to the activity of the taxpayer, to the gross sales. The total amount of capital gains, financial revenue and other revenue are then added to this presumed profit base. Finally, the corresponding tax rates are applied to the presumed profit.

For instance, for the income tax, the percentage for the revenues derived from the sale of products is 8%, while the percentage for service revenue is 32%.

For the social contribution tax on profits, the percentages are 12% and 32%, respectively.

Transitional Tax Regime (RTT)

At the end of 2007, Law 11,638 was enacted and started the process of harmonazing the Brazilian generally accepted accounting principles (BR-GAAP) with the international accounting standards (IFRS).

Law 11,941 created the Transitional Tax Regime (so called "RTT") through which the tax computation shall follow the prevailing accounting rules in force in 2007. Brazilian tax authorities regulated that all tax adjustments, for Brazilian corporate taxes purposes, should be performed in an electronic system (FCONT – Controle Fiscal Contábil de Transição) and informed on annual basis.

Tax Audits

Tax audits are performed by federal tax inspectors on a random basis. The scope and frequency of auditing does not follow a set pattern. In general, the right of the tax authorities to make corporate income tax assessments (statute of limitation for tax purposes) expires 5 years after the end of the tax year in which the tax return should have been filed.

Administrative appeals against assessments must be filed within 30 days of assessment. If the assessment is upheld, the taxpayer may appeal to an administrative court. If still unsuccessful, the taxpayer can appeal to the judicial court.

Gross revenues taxes

PIS (Programa de integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social) are federal social contributions charged on revenues, on a monthly basis, under two regimes: cumulative and non-cumulative.

Under the non-cumulative system, taxpayers may generally recognize PIS and COFINS credits corresponding to 1.65% and 7.6% of certain inputs.

Such tax credits may be also used to offset future PIS (1.65%) and COFINS (7.6%) or other federal taxes due, provided certain requirements are observed.

The PIS and COFINS non-cumulative regime is mandatory for companies subject to the actual profit method of computing corporate income taxes. The PIS and COFINS cumulative system remains applicable for certain entities, such as companies under the presumed profit system. In addition, the cumulative system still applies to revenues deriving from telecommunications, transport and software development services.

Such activities are generally subject to a 0.65% tax rate for PIS and 3% tax rate for COFINS, and no credits are available.

Revenues related to export transactions and the sale of permanent assets are, in general, exempt from these taxes.

Additionally, as of May 1, 2004, the import of goods and services are also subject to PIS and COFINS at a combined rate of 9.25%. This applies to taxpayers under both cumulative and non-cumulative regimes. In some cases, taxpayers may recognize PIS and COFINS credits on the import.

In what regards to the O&G industry, it is important to outline that most of the products derived from oil and gas are subject to a tax concentration special regime of PIS and Cofins. Under this special regime, also known as "PIS/Cofins Monofásico", the PIS and Cofins are levied at specific rates on the sale of certain products derived from oil in order to concentrate the calculation and payment of social contributions in one specific taxpayer within the operational chain.

Indirect taxes


IPI (Imposto sobre Produtos Industrializados) is a federal tax levied on the import and manufacturing of products. In many aspects, it operates like a value added tax, which is charged on the value aggregated to the final merchandise. As a general rule, IPI paid on a prior transaction can be used to offset the IPI liability arising out of subsequent taxed operations. The applicable rate depends on the product and its classification under the IPI tax rates table (TIPI). The classification within TIPI generally follows the Brussels Harmonized Tax Codes.

IPI also has a regulatory nature, i.e., the Brazilian Government may increase its rates at any time by decree as a way to implement financial and economic policies. Additionally, IPI rates can be increased for products considered non-essencial.

In the O&G industry, it is important to note that IPI is not levied on sale of oil, gas and other products derived from petroleum due to a special tax exemption set forth in the Brazilian Constitution.

ICMS (Imposto sobre Circulação de Mercadorias e Serviços)

ICMS is a state tax levied on the import of products and transactions involving the movement of goods (which also encompass electricity), inter-municipal and interstate transportation services and communication services. Tax rates may be higher depending on the local legislation and type of operation. In many aspects, it operates like a value-added tax.

In general, when transactions involve two different states, the rates are 7% (when the purchaser is located in the states of the North, Northeast and Center West regions or in the state of Espírito Santo) or 12% (for purchases located in the South and Southeast regions). For transactions within the same state and in the case of imports, the rates may be 17%, 18% or 19%. Certain products and services are subject to 25% ICMS.

Regarding imports, the ICMS tax base is equal to the CIF value, plus the applicable import tax, IPI, certain customs expenses, the ICMS itself and PIS and COFINS due on the import.

ICMS is also due either when a product is resold in the domestic market or when it is physically removed from a manufacturing facility. The taxable base is equal to the value of the transaction, including the ICMS itself (gross-up), insurance, freight and conditional discounts. IPI must also be added to the ICMS tax base when the transaction is carried out between non-ICMS taxpayers or when it involves a product that will not be further manufactured or resold (e.g. fixed assets).

In general, ICMS taxpayers are entitled to a tax credit in the amount of the tax paid in the previous transaction. The tax credit may be offset against future ICMS payables. If the purchaser is not an ICMS taxpayer, and depending on whether its sales are subject to this tax, ICMS may become a cost and will not be recoverable as a credit.

Brazilian tax legislation also foresees special tax treatments in regard to ICMS for activities related to the Oil & Gas industry, as follows:

(i) Brazilian constitution stipulates that interstate operations involving sale of oil, natural gas and biofuel should be assessed by ICMS only in the State where the product is consumed. This model of ICMS taxation has raisen several discussions in the past in regard to tax leakage for the State where the oil was produced.

(ii) Downstream-related activities are usually subject to a tax substitution/concentration system where oil refineries are supposed to compute and collect the ICMS assessed in future operations.

(iii) Special tax reductions on ICMS calculation are available for natural gas commercialization; etc.

Besides the above, there are several tax benefits available for manufacturers and other foreign companies related to REPETRO that may grant the exemption of ICMS on the industrialization and commercialization of equipments, parts and products related to the O&G industry.

ISS (Imposto sobre Serviços)

ISS is a municipal tax levied on the revenues derived from the provision of services. Although it is a municipal tax, the services subject to the ISS are listed in federal law (Lei Complementar 116/03).

The tax base is the price of the service and the rates vary from 2% to 5%, according to the municipality where the service provider is located, where the service is provided and the type of the service. For most services, there is significant debate as to whether the ISS should be paid to the municipality where the service provider is located or where the service is performed. The taxpayer is, in principle, the service provider.

However, the municipal tax legislation may impose a withholding responsibility on the company acquiring the services.

ISS also applies on the import of services. In this case, the taxpayer is the service provider. Furthermore, Lei Complementar 116/03 introduced an ISS exemption to certain exports of services.

When providing a service also involves a sale of goods, ISS applies to the total price of the transaction, except when there is a specific provision determining the applicability of ICMS on the value of the products sold.

Other federal taxes

Import tax (II)

The import tax is a federal tax applied to the CIF value of imported products upon its customs clearance at variable rates.

The taxable event is the physical entry of foreign goods into the country. Specific applicable rates depend on the classification of the imported products in the Mercosur Common External Tariff tables ("TEC"), which generally follow the Brussels Harmonized Tax Codes.

Import tax is a cumulative tax, meaning that no credits are granted.

Withholding income tax

Withholding income tax applies on certain domestic transactions, such as payment of fees to some service providers, payment of salary and financial income resulting from banking investments. In most cases, the withholding tax is a prepayment of income tax on the individual or entity's final tax return. However, in some cases it is considered a final taxation. Also, withholding income tax is due on most nonresidents' income that has a Brazilian source of payment (e.g., royalties, service fees, capital gains, interest, etc.).

The rates depend upon the nature of the payment, the residence of the beneficiary and the existence of tax treaties between Brazil and the country where the beneficiary is located. Most common rates range from 15% to 25%. As a general rule, income paid to beneficiaries located in low tax jurisdictions is subject to 25% withholding tax.

CIDE Social Contribution

CIDE (Contribuição de Intervenção no Domínio Econômico) is a contribution levied on payments due to non-residents in the form of royalties, technical and administrative services and technical assistance, among others, at a rate of 10%. Note that, unlike the withholding tax, CIDE is a tax imposed on the Brazilian payer of the fees and, therefore, may not be reduced by tax treaties and does not generate a tax credit abroad.

There is a limited tax credit granted to the Brazilian entity for CIDE paid on royalties for the use of trademarks or trade names which reduces the tax's effective rate. Law 11,452, enacted on February 27, 2007, established that royalties for a software license are no longer subject to this levy.

The Oil & Gas industry also has the CIDE Oil tax (CIDE Combustíveis), which tax event is is the import and sale of specific products derived from oil, such as gasoline and diesel. Export transactions are not subject to CIDE Oil Tax.

The tax base is the quantity of product imported or sold. The tax rates correspond to fixed prices based on the volume sold or imported.


IOF is a federal tax levied on credit, exchange, insurance and securitiy transactions and may be assessed at a maximum rate of 25%.The tax rates are defined by government's decrees any changes and may become effective immediately. Some examples of IOF taxation:

(i) Exchange operations: The inflow or outflow of foreign capital imply on an exchange transaction. In case of direct investment, the inflow of capital is subject to 0.38%. The IOF is zero-rated in case of dividends and interest on equity remitted abroad. The IOF is 6% in relation to foreign loans which average term is less than 720 days and for foreign loans with average term higher than 720 days, IOF is zero-rated. IOF is also zero-rated on interest on loans.

(ii) Investment in the Brazilian Financial and Capital markets:

For general investments in the Brazilian financial and capital markets, IOF is charged at a 6%. However, IOF is levied at 2% rate in case the foreign capital is invested in (i) variable income bonds within the Stock/Future Exchange Markets, (ii) acquisition of shares issued by listed entities during public offerings, (iii) acquisition of quotas of participation investment fund (FIP), emerging business investment fund or fund that invest on the referred funds, (iv) conversion of ADRs/GDRs into local shares and (v) change in the foreign investor regime from direct investment (Law 4.131) to investment in shares traded in the stock exchange market (Resolution 2.689). Capital repatriation associated with these investments is zero-rated.

(iii) Currency exchange operations related to the inflow of revenue derived from the export of goods and services and outflow of funds derived from the import of goods are subject to an IOF rate of 0%. The import of services, however, is subject to IOF at 0.38%.

(iv) For local loans, IOF may be levied up to a maximum rate of 1.88% depending on the length of the outstanding balance.

(v) Insurance operations: IOF tax rates may range from 0% to 7.38%. For securities transactions, the IOF tax rate may vary from 0% to 1.5% depending on the type of investment.

Contribution for Renovation of the Merchant Marin (AFRMM)

The AFRMM is a federal tax levied on the maritime transportation price (including specific insurance and general port expenses) which is regulated by the Law 10,893/04. The tax event is the unload of goods in the Brazilian port and has the following rates:

  • 25% for long distance transportation (cross-country transportation);
  • 10% for cabotagefreight (transportation between Brazilian ports); and
  • 40% for river and lake transportation involving liquid bulk cargoes in the north and northeast regions of Brazil.

However, the AFRMM should be exempt on the maritime transportation related to the import of products under special customs regimes which foreseen that the manufactured good shall be further exported. It is important to highlight that the exemption or suspension of this contribution depends on a previous analysis and approval by the Ministry of Transportation.

Governmental Takes

The Brazilian government introduced specific taxes charged from investors of the exploitation of O&G. Find below a brief description of the generally referred to as governmental participations, imposed by Law 9,478/97 and regulated by Decree 2,705/98 for the Oil & Gas industry.

Note that additional remuneration to the oil field land owner may be determined by the ANP on the bid.


A monthly tax due by field concessionaires for the exploration and production of Oil & Gas. Tax rates vary from 5% to 10% and are applied on sales revenue (ANP price reference is considered for this purpose).

Special Participation

A quarterly tax due by field concessionaires for the exploration and production of Oil & Gas of high volume or high profit margin fields. Tax rates vary from 10% to 40% and apply on sales revenue adjusted by deductions allowed by the law (ANP price reference is considered for this purpose).

Signature Bonus

A lump sum tax due by field concessionaires for the exploration and production of Oil & Gas. Amounts due are determined by the ANP on the bid.

Area Retention Tax

An annual tax due by field concessionaires for the exploration and production of Oil & Gas. Amounts due are determined by the ANP on the bid and vary depending on field size and geological characteristics.

Investments in R&D

ANP has been imposing on concession agreements a clause obliging O&G companies to carry out R&D investments. This measure aims to foster the technological research and development of new technologies, products and processes for the Oil & Gas industry, as well as to encourage the creation of O&G centers of excellence and development of national R&D institutions.

According to the referred clause, the O&G company should invest in Brazil a minimum amount of 1% of the gross revenue derived from the E&P of oil fields which are assessed by the Special Participation mentioned above. Note that up to 50% of the amount invested in R&D may be applied for the own O&G company's projects. The remaining amount should be invested in universities and other R&D related institutions authorized by ANP.

The amount destined to R&D may be deducted in the calculation of the Special Participation.

Other Taxes

In addition to the taxes previously described, Brazilian tax environment foresees additional federal, state or municipal taxes that may also be assessed on companies' regular operations. Please find below a brief overview of the main taxes applicable for companies.

ITR (Imposto sobre a Propriedade Territorial Rural) is an annual federal property tax levied on the ownership or possession of real estate located outside urban perimeters. Tax basis vary according to the value, size and location of the real estate, and tax rates vary in accordance with land use.

In regard to state taxes, ITCMD (Imposto sobre Transmissão "causa mortis" e Doação de quaisquer Bens ou Direitos) is a tax levied on the transfer of the ownership of goods and rights by way of causa mortis succession and donations. Tax rates vary according to state legislation.

In addition, IPVA (Imposto sobre a Propriedade de Veículos Automotores) is a state tax levied on the ownership of motorized vehicles (cars, trucks, boats, etc.). The tax base is the value of the vehicle with rates varying according to state legislation.

In relation to municipal taxes, IPTU (Imposto territorial Urbano) is an urban real estate property tax annually charged by municipalities based on the assessed value of the property (which may not correspond to fair market value). Tax rates vary according to the municipality and location of the property. The IPTU taxpayer is the owner of the real estate, or the tenant if the property is leased and the agreement provides for it.

Finally, ITBI (Imposto sobre Transmissão de Bens Imóveis) is a real estate transfer tax charged at variable rates (from 2% to 6%). This tax is usually not levied if real estate is transferred under a corporate reorganization (e.g., mergers, spinoffs, capital contribution in kind, etc.).

Withholding obligations

According to Brazilian tax legislation, payments in connection to render of services and supply of goods between legal entities may be subject to withholding taxes, specifically income tax (IR), social contribution (CSLL), PIS and Cofins social contributions, Service tax (ISS) and social security (INSS), when applicable.

Brazilian tax legislation sets forth specific rates for the withholding taxes mentioned above. In principle, this withholding obligation was imposed to companies as an anticipation of the taxes regularly assessed on its operations.

Specifically in relation to the ISS, there are a number of discussions regarding to which municipality the tax is due and that usually depends on the type of service being rendered or the location of the service provider.

Also, for services involving manpower supply, social security tax (INSS) is usually withheld upon the payment of the invoice at tax rates ranging from 11% to 15% (depending on the risks related to the activity to be performed). In some cases, unrecoverable tax credits should be recognized in connection to INSS withheld greater than the tax effectively due based on the company's regular operation.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.