The main guidelines for taxation in Brazil come from the Brazilian Constitution, which establishes the general principles, limitations on the power to tax, jurisdiction to tax at levels of government and tax revenue sharing provisions. Taxation in Brazil occurs at three levels of government: federal, state and municipal. In broad terms, the main federal taxes cover excise duties, import and export duties, financial transactions,taxes on revenue, profits and income, as well as contribution charges that fund social security and employment benefits, managed by the Federal Revenue Service. Corporate income taxes are levied only at the federal level (i.e. there are no state or municipal income taxes).

Companies resident in Brazil pay taxes on their worldwide profits. Foreign companies are only subject to tax if they engage in certain sales operations involving companies or agents resident in Brazil.

Calendar

The Brazil tax year is the calendar year. Companies must file a paper annual tax return before the last working day of April each year. Tax return extensions are not possible.

Tax Rates

• Corporate Income Tax: 15%
• Surtax on companies with taxable profits over BRL 240,000: 10%
• Social Contribution Tax (non-deductible): 9% (20% for financial institutions, private insurance companies and capitalisation companies until 2018)
• Effective tax rate: 34%

Tax Rate for Foreign Companies

A foreign company is taxed only if it engages in specific sales activities in Brazil through a legally binding representative that is domiciled in the country, or a domestic branch. Foreign investors may also be subject to different capital gains rates on financial markets.

Capital Gains Taxation

Capital gains arising other than out of financial instruments are subject to income tax at 15%.

Tax rate applicable to capital gains is as follow as of 1 January 2017:

• 15% until BRL 5 million;
• 17.5% from BRL 5 million to BRL 10 million;
• 20% from BRL 10 million to BRL 30 million;
• 22.5% over BRL 30 million. Non-resident investors are subject to an obligatory withholding tax of 15% - rising to 25% for residents of tax havens - for capital gains on investments registered with the Central Bank.

Main Allowable Deductions and Tax Credits

All the expenses necessary for company activity are deductible. Other deductible items include social security taxes, private pension contributions, alimony, qualifying educational and medical expenses and qualifying cultural contributions. Taxpayers may also elect for a standard annual deduction of 20% of taxable income, capped at BRL 16,754, instead of itemising deductions. Exemptions and reductions of corporate income tax are provided for businesses in certain less developed areas. Foreign tax credit is available for resident companies on foreign income tax paid, generally limited to the amount of CIT and SCT on the foreign income.

Other Corporate Taxes

There are numerous other taxes, including:

• Tax on Financial Operations (IOF): levied on certain financial operations, such as loans, foreign exchange operations, insurance, and securities, as well as operations with gold (as a financial asset) and foreign exchange instruments. The applicable rate will vary depending on the operation.
• Social Integration Programme (PIS) tax: a federal social contribution calculated as a percentage of revenue; it is levied at the rate of 1.65%
• Social Security Financing Contribution (COFINS): a monthly federal social assistance contribution calculated as a percentage of revenue, is levied at the rate of 7.6%.
• Municipal Service Tax (ISS): imposed on a cumulative basis (it is not creditable), and the rates may vary between 2% and 5%, depending on the type of service (rates to be stipulated on a municipal basis).
• Severence Pay Indemnity Fund (FGTS): levied on employee’s salary at the rate of 8%.

Audit Requirements

The following companies are obliged to submit their financial statements to the review of independent auditors:

• Sociedades Anônimas (SAs)
• Financial Institutions (banks, brokers etc.)
• Insurance companies
• Pension funds
• Public or Private foundations considered of public interest
• Companies subject to national regulatory agencies, such as ANEEL (National Electric Energy Agency), ANATEL (National Telecommunications Agency), ANAC (National Civil Aviation), among many others
• Large corporations, with revenues exceeding USD 300 million, comprising both SAs and Ltdas.
• Philanthropic entities raising more than BRL 2.4 million per year

For other companies not framed in any of the conditions listed above, the contracting of audit accounting is optional, which can be engaged at any time and according to the specific needs of each organization and their managers.

Many companies will hire audit services only for a specific purpose on a temporary basis, for example, in the process of acquisition, merging etc with other organizations. Also, Brazilian companies controlled by foreign companies generally are audited to meet statutory requirements or the demands of the parent companies.

Sources

• Santander Trade Portal: Brazil Tax System
• Deloitte: Taxes and Contributions in Brazil
• PwC: Brazil Taxes on Corporate Income
• Invest Brasil Guide
• Healy Consultants Group: Accounting and Tax in Brazil
• The Brazil Business: Accounting Audit in Brazil
• The Brazil Business: Brazilian Tax Reform