In a country, taxation is one of the ways in which the state takes charge especially in areas where the private sector is unable to effectively respond. Taxation is used to raise revenue for expenditures and other services. Amazingly, taxation can be carried out through various legal or illegal means. However, the imposition of taxes is considered fair and legal when it is done with the principles of equality under the law.
The government may have privileges and powers to impose taxes which are not available to the average individual. Various taxes are levied at the federal, state and municipal levels. However, these can sometimes be a burden to businesses and individuals alike. Mauricio Mendes Dutra, a Brazilian business expert looks into Brazil taxation system including the types, structure and many more.
The tax landscape in Brazil can be a complex one that is subject to change. Mauricio Mendes Dutra advises to always consult with tax professionals if you want accurate and up-to-date information. Mauricio Mendes Dutra further explains that the tax system is at three levels which is at the federal, state, and municipal levels.
Direct Taxes
- Income Tax: This is a progressive tax levied on individuals’ income, including salaries, wages, and investment income.
- Corporate Income Tax: This tax is applied to the profits of corporations and other legal entities.
Indirect Taxes
- ICMS (Tax on the Circulation of Goods and Services): This is a state-level value-added tax (VAT) levied on the sale of goods and services within the state.
- IPI (Tax on Industrialized Products): This is a federal tax levied on the sale of manufactured products.
- ISS (Municipal Service Tax): This is a municipal-level tax levied on the provision of services.
- PIS/COFINS: These are federal social security contributions levied on the gross revenue of companies.
- Import Duties: These are taxes imposed on the importation of goods into Brazil.
Other Taxes
- Property Taxes: The property taxes are only levied by the locality on real estate ownership.
- Financial Transactions Tax: This tax applies to specified financial transactions, including currency trade.
Import and Export Taxes in Brazil
Brazil’s import and export taxes aim at shielding the local industries, raising funds and controlling international trade.
Import Taxes
- Import Duties: These are ad valorem taxes calculated as a percentage of the customs value of imported goods. The rate can vary depending on the product category and country of origin.
- Additional Taxes: The imported goods may also bear other taxes including IPI (Tax on Industrialized Products) and ICMS (Tax on Goods and Services’ Circulation) apart from this customs duty.
- Import Licensing: Some goods may require licences to be imported, which will create extra expenses plus limits upon an import.
Export Taxes
- Export Duties: In general terms, Brazil does not charge export duties for most commodities in order to promote exports; however there are some exemptions for particular items including minerals or agricultural produce. Hence, the Brazilian government has various means used to stimulate exports such as tax exemptions, subsidies as well as loan programs within which exporters can receive funds.
Key Factors Affecting Import and Export Taxes
- Brazil as part of the Mercosur trading group has preferential trade agreements with Argentina, Paraguay, Uruguay and Venezuela meaning that goods traded among these countries have generally lower import duties attached to them.
- Trade Agreements with Other Countries: Brazil also has signed free trade agreements with several nations such as the European Union, China or even the United States which can help in greatly reducing or even eliminating the import taxes on goods exchanged between Brazil and its trading partners.
- Import Tariff Classification: Import tariffs on goods depend on how they are classified under the Harmonized System (HS) code system.
- Rules of Origin: There are certain “rules of origin” that apply to imported products to be entitled to any preferential treatments granted through trade treaties; such requirements usually demand that some percentage of value of a product must be added in a particular bloc.
Main Corporate Taxes
- Corporate Income Tax (IRPJ): This is the primary corporate tax in Brazil, levied on the taxable income of corporations and other legal entities. The rate is progressive, with higher rates applicable to larger profits.
- Social Security Contribution on Gross Revenue (CSLL): This is a federal tax that is calculated as a percentage of gross revenue of companies. Although it is named social security contribution, it is a corporate taxation.
Tax Calculation and Deductions
- Taxable Income: Corporate taxable income equals gross revenue minus the allowable deductions. Allowable deductions may include expenses incurred in running the business, depreciation and losses carried forward.
- Tax Credits: In order to lower their overall tax liability, companies may be eligible for tax credits. Such credits are available for investment in certain regions or sectors of the economy, research & development spending, among other qualifying activities.
Special Tax Regimes
- Lucro Presumido: This is a simplified tax regime that enables firms to estimate their taxable income based on a predetermined percentage of their gross revenues.
- Lucro Real: This refers to the general tax regime where firms are required to determine taxable income using actual bookkeeping records.
- Simples Nacional: This is a simplified tax regime available to small businesses that meet certain criteria. It combines several taxes into a single monthly payment.
Brazil’s taxation regime is complex, that is why Mauricio Mendes Dutra walks you through what it entails in order for individuals and businesses to navigate the system easily.