Taxes in Brazil
Residency
An individual is considered a resident of Brazil when he or she is holding a permanent visa, or a temporary visa with an employment agreement. An individual is a resident without an employment agreement when staying in Brazil for more than 183 days within 12 months. A foreign company is a resident if it was incorporated in Brazil or has local activity.
Foreign nationals who are tax-resident in Brazil are required to pay tax on their Brazilian and overseas-generated income, unless covered by a Double Taxation Treaty between Brazil and their home country, and must file an annual tax return in April. Foreign nationals become subject to tax-residence status if they stay in Brazil for more than 183 days in any 12-month period, and this status applies for 12 months after their last departure from Brazil.
Foreign nationals who are not tax-resident are required to pay tax only on their income from Brazilian sources, at a rate of 25% on earned income and 15% on unearned income. They do not have to file an annual tax return.
Income Tax
Individual Income Tax
Brazil has a progressive personal taxation system under which individuals are taxed up to a maximum of 27.5% of their income.
Brazil’s individual income tax rates for 2008 are 15% and 27.5%. The Brazilian fiscal year begins on Jan. 1 and ends on Dec. 31. The rate is progressive from 0% to 27.5% and shared out into three brackets. These taxation brackets apply to monthly income amounts, on a yearly basis. Incomes of lower than BRL15,764 ($9,080) are exempt from income tax. Incomes from BRL15,764 ($9,080) to BRL31,501 ($18,144) are charged at a rate of 15%, and incomes above BRL31,501 ($18,144) are charged at a rate of 27.5%.
Taxes are usually deducted directly from employee salaries by Brazilian companies, but payments of tax on other income must be made on a monthly basis at any commercial bank. Overall liability for tax is adjusted following the annual tax return.
There are several types of reductions available for taxpayers in Brazil depending on the regime of the declaration and whether it is simplified or complete:
- Payments made for educational expenses, up to an annual limit of BRL2,198 ($1,266)
- Brazilian Private Pension Plan contributions, up to 12% of gross income
- Social security rates
- Donations, certain school fees, medical expenses, etc. (20% maximum of the global annual income).
Self-employed people can deduct expenses when calculating their income for tax purposes. Other deductions, which apply to all taxpayers, include education expenses up to a maximum of BRL1,998 ($1,150) per year, and a monthly deduction per dependent.
Corporate Tax
On Aug. 1, 2007, tax authorities issued standard instructions to regulate the simplified tax regime (super simples) announced by the Brazilian government through Complementary Law n° 123/2006. The measure authorizes companies under this regime—those with annual gross revenues of up to BRL2,400,000 ($1,372,684)—to pay a single tax in place of the following federal, state, and municipal taxes:
- IRPJ (federal corporate income tax)
- CSLL (federal social contribution on net income)
- PIS and COFINS (federal contributions levied on income)
- IPI (federal excise tax)
- Federal payroll taxes/contributions
- ICMS (state taxes on goods and services)
- ISS (municipal services tax).
The applicable tax rate will vary from 4% to 17.42%, depending on the type of activity—industry, commerce, services, and so on. Representing in some instances a lower tax burden for the taxpayers and to a certain degree, lower compliance costs.
This new tax regime, which came into effect on July 1, 2007, differs from the standard methods to calculate corporate income tax. Larger companies can normally opt to calculate income tax under an actual profits method (lucro real) or a presumed profits method (lucro presumido).
Under the actual profits method (lucro real), the taxable income is calculated in accordance with corporate records and adjusted for tax purposes in line with the applicable regulations (standard taxable income calculation). The corporate taxpayers may estimate their monthly tax payments (IRPJ and CSLL) by using computation rules applicable for the presumed taxable income basis. A final balance sheet and statement of income must be drawn up at year-end and the annual tax liability (including income tax surcharge) computed. Any difference between the final tax liability computed and the amounts estimated and paid in advance or withheld at source will either be paid up on March of the following calendar year (subject to interest) or claimed as a tax credit.
The presumed profits method (lucro presumido) consists of applying an established percentage to the company’s gross revenues to serve as basis to calculate IRPJ and CSLL. The income is calculated on a quarterly basis on an amount equal to different percentages of gross revenue (based on the entity’s activities). In case of rendition of services, for instance, presumed profit is determined by applying 32% over the gross revenues earned by the company in the period. IRPJ and CSLL rates (combined rate of 34%) are then applied over such presumed profit.
It should be noted that the principal restriction that would prevent a company from calculating IRPJ and CSLL based on presumed profits is that annual revenues of the company may not exceed BRL$48,000,000 ($27,453,672). In this case, the company must calculate the taxable income under the real profits method.
Social Security Tax
Employer: 37.3% of the gross salary comprising 28.8% social security and 8.5% for severance fund.
Employee: 7.65% to 11% of the gross salary. The employee’s payment, which is capped, is based on a contribution salary table, provided by the government.
Tax on Rental Income
Tax is charged on worldwide income for residents of Brazil at 15%, although some foreign tax relief and credits can be allowed under specific tax treaties.
Mortgage interest is not deducted when calculating taxable rental income.
Capital Gains Tax
Capital gains are generally subject to tax at 15% (with exceptions), and gains from the sale of securities on a public stock exchange are taxed at 20%, for all Brazilian residents. Non-residents have to pay 15% on capital gains relating to property in Brazil at the moment the gain is obtained.
The following are exempt from capital gains tax:
- Gains from the sale of an individual property, provided a similar sale has not taken place in the previous five years and the total value of the sale does not exceed a specified amount (BRL440,000 [$253,441] in 2004)
- Amounts received from the sale of assets with a sales price of less than BRL20,000 ($11,520) per month
- Gains from the sale of securities on the Brazilian public stock exchange, with a sale price of less than BRL4,143.50 ($2,386) per month
- Assets sold during a period of Brazilian residency, acquired during a non-resident period.
Note: Brazil has double taxation treaties with a number of other countries, which mean that tax paid in one country can be offset against any tax payable in the other. However, there is currently no such agreement between Brazil and the U.S. These various tax treaties could affect the tax rates described above.
Inheritance/wealth Tax
Brazil has no inheritance or wealth taxes. However, some states may impose a death transfer and a donation/gift tax. For example, there is the imposto de transmissão causa mortes e doação, which is a tax on the assets of the deceased or of a person who gives a donation to a third party. It can be from 4% to 8% on the value of the asset.
Value Added Sales and Services Tax/excise Tax
It is important to note that Brazil does not have VAT as such. The Brazilian tax regime for sales and production is not similar to those of Europe.
Two types of value added type taxes exist in Brazil: value added sales and services tax (ICMS) and excise tax (IPI).
ICMS is a state tax levied on sales or movement of goods, freight, transportation, communications services, and electric energy. Intrastate transactions are taxed at 18%, interstate transactions 7% to 12%, and most imports 18% to 25%. Communication services are taxed at 13% to 35%.
IPI is a federal tax levied on nearly all sales and transfers of products manufactured in or imported into Brazil, depending on the degree of necessity. IPI rates vary normally around 10% to 15%, but in certain cases range over 300%.
Municipal/local Tax
Some municipalities may charge a service tax on certain businesses or real estate transfer tax (2% on transfers of real estate). An annual urban real estate tax for property owners is also applicable at approximately 0.6%, but in some locations it can be as high as 1.4% of the assessed value of the property, but this will vary according to the municipality concerned.
For further information or advice on taxation in Brazil, contact Alexandre Rodrigues de Albuquerque Law Office (Rui Farias), Av. Dom Luiz, # 500, suite 1501, Fortaleza, Ceará, Brazil; tel. (55)858-802-1176; e-mail: rui@albuquerque.adv.br; website: www.albuquerque.adv.br.