Companies are subject to corporate income tax (IRPJ) at a rate of fifteen per cent (15%); additionally, the portion of taxable income that exceeds R$240,000 is subject to a surtax at a rate of ten per cent (10%)1. Besides corporate income tax companies pay as well a “social contribution on net profits” (CSLL) at a rate of nine per cent (9%). These taxes apply on the taxpayer’s worldwide income.



In Brazil taxation is oriented to goods and services. This approach, in combination with the country’s federal system, results in an intricate indirect taxation regime. Domestic tax planning thus is a major concern for local business.


There are two VAT taxes upon the sale of goods and certain services: a federal VAT on manufactured products (IPI) and a state VAT on goods and certain services (ICMS).

The IPI is a federal VAT-type tax levied upon the production and importation of manufactured goods. Taxpayers are the respective manufacturer or importer of such goods. Tax rates vary according to the nature of the goods (higher rates apply to nonessential products such as cigarettes, beverages and cosmetics, among others).

ICMS is a VAT-type tax levied by the state governments upon the sale (including interstate trade, but not exportation) of any and all kinds of goods (including oil & gas) as well as certain services (presently: telecommunications, electricity, intermunicipal and interstate transportation).

A VAT-type tax ill-fitting in a federal country like Brazil the ICMS legislation is very complex. The numerous tax rates illustrate the intricacy of ICMS rules: tax rates for internal trade (i.e. within a state) differ from one state to another as well as according to the nature of the goods (most rates range between twelve to nineteen per cent); the tax rate for interstate trade is twelve per cent, except when the state of destination is in the North or Northeastern regions, when a reduced rate of seven 1 I.e., for each added R$1.00 taxpayer pays an extra R$0.10 in addition to the tax calculated at the 15% rate. per cent applies; ICMS due upon the sale of oil and LPG gas is paid only to the state of destination at the rate established by the law of that state; on the other hand an interstate rate of twelve per cent applies to the sale of LNG gas.

Furthermore, each state grants ICMS tax exemptions, reductions and deferrals, at times in disagreement with federal law that conditions such tax incentives to concurrence by all the states.


The federal government also levies two social security taxes2 upon the companies’ gross income.

Both taxes are presently levied on a value-added basis at a rate of 1.65 per cent (PIS) and 7.6 per cent (COFINS); for certain industries however these taxes are levied at different rates and some of them on a turnover basis.


Municipalities levy a tax on services (ISSQN a/k/a ISS) at a basic rate of five per cent. Taxation by ISS reaches services performed outside of Brazil for a local customer. Here ISS is paid by the local customer on behalf of the nonresident ISS taxpayer, as a withholding tax (not covered by the international tax treaties).

The ISS legislation (federal and municipal statutes) has not been able to clarify certain matters concerning the collection of the tax, which remain subject to interpretation by the courts. The main controversial topics are the extension of the statutory definition of services (e.g., to include lease of personal property, licensing of IP, etc.) and the municipality entitled to collect the tax owed in intercity trade of services (taxpayers are frequently required to pay ISS to both the cities of their place of business and their customer’s).

In a situation similar to ICMS, many municipalities grant ISS tax incentives. Such incentives however must observe the minimum rate of two per cent established in the Constitution´s temporary provisions.


The federal, state and city governments grant tax and investment incentives to companies and sometimes to the owners, in most cases without differentiating between local and foreign investors. The nature, extension and conditions of such incentives undergo frequent changes, especially those granted by the state and municipal governments.

Investment incentives surfaced in the nineties when direct investment returned to Brazil after a decade of stagflation and foreign debt crisis (the eighties, known in Brazil as the “lost decade”). New car plants, “dot com” ventures, privatization of “telcos”, among other businesses, prompted a new wave of foreign investment in Brazil. State and municipal governments yearning for new sources of employment and economic activity began to offer incentives to attract these new ventures. Competition between them led to the escalation of incentives on what became known as the “fiscal war”. Led by the auto industry, investors (both local and foreign) included tax shopping between competing states and municipalities, as a normal proceeding to select a location for their new ventures. In response, state and municipal governments offered larger tax cuts or tax holidays, sometimes not in agreement with the federal legislation concerning ICMS and ISS. Such state and municipal incentives plus the investment incentives offered by the federal government to remedy regional inequalities, resulted in a loose 2 Besides the social security tax upon the payroll. network of “tax havens.”

The primary incentive offered by state governments is the deferment of ICMS payments for a period of ten years. City governments usually offer a reduction of the ISS rate and sometimes tax exemption (for property tax) for a certain period of time (four years or more). Additionally, in their scramble for new investment, states and cities sometimes offer the land necessary to build manufacturing plants, warehouses, etc.

The federal government offers tax incentives to industrial, agricultural and agribusiness investments in the states of Amazonas, Pará, Maranhão and Espírito Santo. Additionally the federal government designated an area in Manaus, AM, as a free zone.

Federal investment incentives are:

• lower tax rates or exemption of income tax (IRPJ), federal VAT (IPI) and import tax (II);
• equity finance with funding provided by the Amazon Investment Fund;
• land in industrial estates.

The award of federal incentives to an investment and their extent is subject to the submission of a project and its approval by the agencies that administer the incentive programs.

Because interest rates in Brazil are among the highest in the world the sole local source of development capital is the National Development Bank (BNDES). This state-owned specialized institution offers long term credit lines at lower rate than private banks (in fact, private banks do not offer LT credit lines in Brazil), albeit high for worldclass standards. BNDES loans are conditioned to the submission of a project to be partly funded by the borrower itself. Furthermore, all BNDES loans are collateralized. Actual experience shows that credit approval by the BNDES is lengthy and tied up in red tape.


Direct investment frequently involves sending executives or technicians to work in the host country on a temporary basis. In Brazil physical presence – i.e., not involving bona fide residence - can subject a nonresident alien to Brazilian income tax laws. Expatriate personnel that enter Brazil under a (one of various categories) temporary3 visa may become local taxpayers should they meet the physical presence test. The following rules determine if an alien is required to pay personal income tax (IRPF) in Brazil under the physical presence criteria:

a) if the temporary visa bearer stays in Brazil for not less than a hundred and eighty four (184) days, whether consecutive or not, within a period of twelve (12) months computed from the date of any entry, he/she becomes a resident taxpayer.

b) With respect to the construction of a) if the visa bearer stayed less than 183 days (consecutive or not) in Brazil (ex.: first entry: 1/1/05, first departure: 6/30/05, second entry: 7/15/05) the computation of the twelve month-period shall reinitiate from the date of the subsequent entry4 (ex.: another twelve months beginning 7/15/05).

c) If the visa bearer becomes a resident taxpayer in Brazil, he/she will only loose that status (i) on the date he/she departs from Brazil, having filed an exit income tax return (Declaração de Saída Definitiva do País)5, or (ii) on the first day subsequent to the twelfth (consecutive) month of his/her departure from Brazil6, if no exit income tax return was filed7.

While the expatriate remains a nonresident taxpayer, any and all earned income paid to him/her in or from Brazil will be subject to a 25% withholding tax, or at a lower 15% rate if he/she delivers technical services as a private practitioner8. If the expatriate becomes a resident taxpayer, he/she will be taxed based on his/her worldwide income.

The above mentioned regulations do not revoke the provisions of applicable tax treaties (e.g., signed between Brazil and the country where the expatriate is domiciled) nor the applicable reciprocal foreign tax credit rules9, so that these may prevail over the former.

1 I.e., for each added R$1.00 taxpayer pays an extra R$0.10 in addition to the tax calculated at the 15% rate
2 Besides the social security tax upon the payroll.
3 If entry in Brazil is made under a permanent or employment visa, the alien becomes a resident taxpayer as of the date of arrival.
4 IN SRF No. 208/02, Art. 2, sole paragraph; Art. 3, § 1.
5 IN SRF 208/02, Art. 3, II.