More content. More experts. More answers. Indirect Taxation in Brazil A Basic Primer for a Complex Country Ramon Frias Charles Maniace Senior Tax Research Counsel Director - Tax
Housekeeping This is one of a number of complimentary webinars that Taxware offers to tax, finance and IT professionals each year. Today s webinar will last for 60 minutes, ending at 1 pm EST. The last 10 minutes of today s program have been reserved for Q&A. A PDF copy of today s presentation is available right now for download. CPE certificates will be emailed to those who qualify within 30 days of today s broadcast. Please participate in our brief survey at the conclusion of today s webinar. If you are here for CPE credits, this survey is mandatory. The information and materials provided in this webinar are for informational purposes only and are not intended as, nor should be deemed as providing any specific tax or legal advice. Attendees should contact a qualified professional to obtain advice with respect to any particular topic. 5/8/2014 2014 Taxware LLC Slide 2
CPE Question 1 Are you planning to apply for CPE credit for attending today s webinar? A. Yes B. No Please complete the survey at the end of the webinar to obtain CPE credit. NASBA (National Association of State Boards of Accountancy) requirements for receiving CPE credit: Log in from same e-mail address that you used to register Stay for the full hour Answer all polling questions Answer the required survey questions 5/8/2014 2014 Taxware LLC Slide 3
Why Brazil Should Matter to Your Business? The growing importance of the Brazilian market US-Brazil trade trends One of the most complicated indirect tax systems in the world 5/8/2014 2014 Taxware LLC Slide 4
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Federal Level: IPI 5/8/2014 2014 Taxware LLC Slide 6
Imposto sobre Produtos Industrializados (IPI) Scope of the Tax: All products resulting from what the law considers to be an industrialization process whether partial, intermediary or complete. This includes:» Transformation» Enhancement» Bottling, Packaging or Re-labeling» Renovation or Reconditioning 5/8/2014 2014 Taxware LLC Slide 7
Imposto sobre Produtos Industrializados (IPI) Administration of the Tax: Secretaria da Receita Federal do Brasil Legal Basis: Article 153, Paragraph IV, of the Federal Constitution of Brazil. Decrees 4542 and 4544 of December 26, 2002 5/8/2014 2014 Taxware LLC Slide 8
Imposto sobre Produtos Industrializados (IPI) Exclusions From the Tax: Items Considered Out of Scope:» Investment gold, electricity, petroleum products, books and magazines etc. Products Considered Non-Industrialized:» Certain food products sold directly to consumers, Handcrafts produced by unemployed individuals and commissioned by the end user, Prescription medicines sold to the final consumer, Repair, modification or reconditioning of certain used goods, Merchandise produced by individual farmers. Products Subject to Zero Rate:» Those products listed as zero rated under Article 54 of the IPI Regulation or products subject to zero rate in the TIPI Products Considered Non-Taxable (Nao Tributados):» Those listed in the TIPI as exempt. An exemption means that sellers cannot obtain credit on the IPI paid on associated taxable inputs. 5/8/2014 2014 Taxware LLC Slide 9
Imposto sobre Produtos Industrializados (IPI) Tax Rates: Many different rates can apply depending on the product. The most common rates are: 2, 3, 4, 5, 10, 15, 20, 25 and 30 percent The President may reduce the tax rate applicable to certain products if such change is necessary for implementing an economic policy. 5/8/2014 2014 Taxware LLC Slide 10
Imposto sobre Produtos Industrializados (IPI) Tax Base: For Imports: CIF + Import Taxes + Other Charges (e.g. exchange rate charges) Domestic: Value of the goods upon leaving the manufacturing facility or the establishments effectively treated as a manufacturing facility 5/8/2014 2014 Taxware LLC Slide 11
Imposto sobre Produtos Industrializados (IPI) Taxpayers under the IPI: Manufacturers Establishments Considered a Manufacturing Facility Under the Law Importers of Industrialized Goods Local Suppliers of Manufacturers and Importers Buyers of Seized or Abandoned Products Brought to Auction by the Tax Administration Entities that Opt-In to Become Taxpayers Special Circumstance Taxpayers: Transporters of taxable goods without the proper fiscal documentation Possessors of taxable goods for the purpose of industrialization or resale without the proper fiscal documentation Substitute taxpayers 5/8/2014 2014 Taxware LLC Slide 12
Imposto sobre Produtos Industrializados (IPI) Multi-Stage Tax:» Tax applies at the Import, Manufacturing, Distribution and in several cases at the Retail level. Tax is Non-Cumulative:» In general, the IPI paid on inputs is deductible from the tax collected on outputs. Credits not used in a given month can be carried forward. Time for Payment:» For imports, tax should be paid at the time of import. For local sales, tax is paid on a monthly or ten day basis. 5/8/2014 2014 Taxware LLC Slide 13
CPE Question 2 Is your company currently doing business in Brazil? A. Yes B. No C. What s a Brazil? Please complete the survey at the end of the webinar to obtain CPE credit. NASBA (National Association of State Boards of Accountancy) requirements for receiving CPE credit: Log in from same e-mail address that you used to register Stay for the full hour Answer all polling questions Answer the required survey questions 5/8/2014 2014 Taxware LLC Slide 14
: Federal Level: PIS & COFINS 5/8/2014 2014 Taxware LLC Slide 15
Contribuição para o Financiamento da Seguridade Social (COFINS) Programa de Integração Social (PIS) Scope of the Tax:» Both are federal level gross receipt taxes intended to finance the social security system of Brazil. Administration of the tax:» Secretaria da Receita Federal do Brasil Legal Basis:» Article 149 of the Federal Constitution of Brazil» Laws 70/1991, 9718/1998 and 10833/2003 and others (COFINS)» Laws 7/1970, 26/1975, 10637/2002 and others (PIS) 5/8/2014 2014 Taxware LLC Slide 16
Contribuição para o Financiamento da Seguridade Social (COFINS) COFINS Rates: For Local Transactions: Non Cumulative system: 7.6% Cumulative system: 3% * For Imports: 7.6% Nominal standard rate 8.6% Applicable to specific types of goods. PIS Rates: For Local Transactions: Non Cumulative system: 1.65% Cumulative system: 0.65%* For Imports: 1.65% Other rates may apply, especially in the case of transactions involving petroleum derivate products. * Special Rates May Apply 5/8/2014 2014 Taxware LLC Slide 17
Contribuição para o Financiamento da Seguridade Social (COFINS) Programa de Integração Social (PIS) Tax Base: For Local Transactions: The monthly gross revenues received by an entity regardless of their denomination or accounting classification after excluding (for example): Unconditional discounts Certain taxes: (IPI and ICMS withheld) Revenues generated by the sale of fixed assets Revenues from exports Revenues from sales to registered exporters 5/8/2014 2014 Taxware LLC Slide 18
Contribuição para o Financiamento da Seguridade Social (COFINS) Programa de Integração Social (PIS) Tax Base: For Imports of Goods: Customs value used for the calculation of import tax. For Imports of Services: The tax base is defined by an official formula established by the ministry of Finance of Brazil that requires the inclusion of the PIS, COFINS and the municipal tax on services (ISSQN) : Import COFINS = D * V*((1+F)/(1-C-D)) Import PIS = C * V*((1+F)/(1-C-D) D: Tax rate of the COFINS V: Sales Price F: Tax rate for services C: Tax rate of the PIS 5/8/2014 2014 Taxware LLC Slide 19
Contribuição para o Financiamento da Seguridade Social (COFINS) Programa de Integração Social (PIS) Multi-Stage Tax:» The PIS and COFINS apply at Import, Manufacturing, Distribution and Retail levels. COFINS and PIS are Non-Cumulative:» The taxpayer can deduct the COFINS and PIS paid on goods and services from the tax collected on outputs. Credits can be carried forward. In Other Words: (+) COFINS/PIS Collected on Gross Receipts (-) COFINS/PIS Paid on Qualifying Purchases COFINS/PIS To be Remitted Time for Payment:» For imports, tax should be paid at the time of import. For local sales, tax is paid on a monthly basis. 5/8/2014 2014 Taxware LLC Slide 20
CPE Question 3 If you are currently doing business in Brazil, how are you handling your tax obligations? A. In-house created automation B. 3 rd party created automation C. Manual calculation D. Not doing business in Brazil Please complete the survey at the end of the webinar to obtain CPE credit. NASBA (National Association of State Boards of Accountancy) requirements for receiving CPE credit: Log in from same e-mail address that you used to register Stay for the full hour Answer all polling questions Answer the required survey questions 5/8/2014 2014 Taxware LLC Slide 21
State Level: ICMS & FECP 5/8/2014 2014 Taxware LLC Slide 22
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Scope of the Tax: The Federal Constitution of Brazil provides that: It falls upon the states and to Federal District to impose tax upon the movement of goods and on the provision of inter-state and inter-municipal transportation services as well as communication services. The tax is to apply even when such transactions and services originate from abroad. 5/8/2014 2014 Taxware LLC Slide 23
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Administration of the Tax: The Tax Applies at Every Brazilian State as well as the Federal District Legal Basis: Article 155 of the Federal Constitution of Brazil Complientary Law 87/96 (Lei Kandir) Lei Complementar nº 24/75 Local Legislation at the State Level 5/8/2014 2014 Taxware LLC Slide 24
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Standard Rates of 17% Acre, Alagoas, Amapá Amazonas, Bahia, Ceará, Distrito Federal, Espírito Santo, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Pará, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, Rio Grande do Sul, Rondônia, Roraima, Santa Catarina, Sergipe and Tocantins Standard Rates of 18%: Minas Gerais, Parana, Rio de Janeiro* and Sao Paulo * Rio de Janeiro applies an additional 1% FECP along with the ICMS, making the total tax rate 19% on each transaction. 5/8/2014 2014 Taxware LLC Slide 25
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Special Tax Rates: TPP Specific Rates: Each state establishes reduced and increased rates for certain goods. Guns and alcohol are usually subject to a rate between 25% and 37%. Food and medicines can be exempt, zero rated or subject to a reduced rate. Special rates based on the location and nature of the seller and the buyer: Reduced 7% or 12% rates for inter-state transactions at origin. Special Rates Based on the Origin of the Product: A special 4% rate applies for inter-state transactions related to imported foreign goods 5/8/2014 2014 Taxware LLC Slide 26
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Tax Base: Local Sales: In general, the value of the operation (+) Price of the good or service (+) Shipping and handling charges paid to the seller (+) Bonuses (e.g. free add-on s) (+) Conditional discounts (+) IPI (If the goods are being sold for final consumption) (+) The ICMS itself (-) Unconditional discounts (-) Shipping and handling charges paid to third parties by the buyer. (-) IPI (if in case of sales for manufacturing or resale) Imports of Goods: CIF + Import Taxes + IPI + Special Charges + Special Taxes Special Tax Base Calculations: Reduction of the tax base: In some circumstances, states are allowed to reduce the tax base used by certain taxpayers. 5/8/2014 2014 Taxware LLC Slide 27
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Nominal vs. Real ICMS Rates: Nominal Tax Rate Real Tax Rate 4% 4.17% 7% 7.53% 12% 13.64% 17% 20.48% 18% 21.95% 19% 23.46% 25% 33.33% 5/8/2014 2014 Taxware LLC Slide 28
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) B2C Inter-State Place of Supply Rules: Origin System Bahia Ship From: Sao Paulo Ship To: Bahia Full ICMS collected and paid at the Ship From state: Sao Paulo 18% ICMS Sao Paulo Protocol 21/2011 - declared unconstitutional by the Brazilian Supreme Court in February 2014 5/8/2014 2014 Taxware LLC Slide 29
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) B2B Inter-state Place of Supply Rules: Origin/Destination Sao Paulo Bahia Ship From: Sao Paulo Ship To: Bahia 7% ICMS collected and paid at the Ship From (Sao Paulo) Customer self assesses and pays the difference to Ship to State: (10% to Bahia) Ship From: Bahia Ship To: Sao Paulo 12% ICMS collected and paid at the Ship From state (Bahia) Customer self assesses and pays the difference to Ship to State: (6% to Sao Paulo) 5/8/2014 2014 Taxware LLC Slide 30
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) B2B Inter-state Place of Supply Rules Origin State (Ship From) Destination State (Ship To) AC AL AM AP BA CE DF ES GO MA MT MS MG PA PB PR PE PI RN RS RJ RO RR SC SP SE TO AC N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 AL 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 AM 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 AP 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 BA 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 CE 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 DF 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 ES 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 GO 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 MA 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 MT 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 MS 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 MG 7 7 7 7 7 7 7 7 7 7 7 7 N/A 7 7 12 7 7 7 12 12 7 7 12 12 7 7 PA 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 12 PB 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 12 12 PR 7 7 7 7 7 7 7 7 7 7 7 7 12 7 7 N/A 7 7 7 12 12 7 7 12 12 7 7 PE 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 12 PI 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 12 RN 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 12 12 12 RS 7 7 7 7 7 7 7 7 7 7 7 7 12 7 7 12 7 7 7 N/A 12 7 7 12 12 7 7 RJ 7 7 7 7 7 7 7 7 7 7 7 7 12 7 7 12 7 7 7 12 N/A 7 7 12 12 7 7 RO 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 12 RR 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 12 12 12 SC 7 7 7 7 7 7 7 7 7 7 7 7 12 7 7 12 7 7 7 12 12 7 7 N/A 12 7 7 SP 7 7 7 7 7 7 7 7 7 7 7 7 12 7 7 12 7 7 7 12 12 7 7 12 N/A 7 7 SE 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 12 TO 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 N/A 5/8/2014 2014 Taxware LLC Slide 31
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) B2B Inter-state Place of Supply Rules for Foreign Goods: Origin/Destination USA Ship From: Bahia Ship To: Sao Paulo Sao Paulo Bahia 4% ICMS collected and paid at the Ship From state: (Bahia) Customer self assesses the difference to Ship to State: 14% to Sao Paulo 5/8/2014 2014 Taxware LLC Slide 32
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) ICMS Tax Substitution Schemes Tax substitution is a mechanism used by the Tax Administration to enhance the collection of the ICMS for transactions that are difficult to supervise due to the nature of the goods involved, the type of taxpayers or their clients, or for other situations as determined necessary. The obligation to collect and pay the ICMS is transferred from the normal entity (Substituted Taxpayer) to another entity (Substitute Taxpayer) The Substitute Taxpayer can be the seller, the buyer, or a third party 5/8/2014 2014 Taxware LLC Slide 33
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) Game changers for the ICMS: Nature of the seller and buyer Location of the parties Origin of the item Purpose of the purchase Tax substitution schemes Nature of the good or service provided Type of transaction Other conditions 5/8/2014 2014 Taxware LLC Slide 34
Impostos Sobre Circulação De Mercadorias E Serviços (ICMS) CST: The Codigo de Situacicao Tributaria is a three digit code intended to describe the tax treatment under the ICMS of an item that is being sold or transferred. CFOP: The Código Fiscal de Operações e Prestações is a number composed of five digits established by the Federal government of Brazil, intended to identify, on each invoice, all the circumstances that affect the taxability of every item included on an fiscal invoice (Nota Fiscal). It should be attached to each item included on an invoice (Per line). 5/8/2014 2014 Taxware LLC Slide 35
Impostos Sobre Circulação De Mercadorias E Serviços (LCMS) Information derived from each CFOP & CST: The origin of the taxable good or service (national, foreign) If it is a foreign item, whether it has been directly imported or it is being sold by a local seller that previously imported it. The destination of the item (sold internally, to another state, exported outside of Brazil) If the good or service was subject to ICMS or IPI withholding The type of VAT withholding that was applied If the application of tax has been temporarily suspended If tax was collected in advance If the base upon which the tax was applied had been reduced, etc. First Digit: Origin of Goods 0. National 00. Fully taxed Second and Third Digits : How the good is taxed under the ICMS 1. Foreign - Direct import 10. And taxed by the ICMS tax substitution 2. Foreign - Acquired domestic 20. With reduction calculation base 30. Exempt or Non taxable but previously subject to the ICMS tax substitution 40. Exempt 41. Non Taxable 50. Suspension of the ICMS 51. Deferral of the ICMS 60. ICMS previously charged by tax substitution 70. With reduction of the tax base and the ICMS tax substitution 90. Other 5/8/2014 2014 Taxware LLC Slide 36
Municipal Level: ISSQN 5/8/2014 2014 Taxware LLC Slide 37
Brazil's Indirect Tax System: Imposto Sobre serviços de Qualquer Natureza (ISSQN) Scope of the Tax: All services detailed in law 116/93 5/8/2014 2014 Taxware LLC Slide 38
Brazil's Indirect Tax System: Imposto Sobre serviços de Qualquer Natureza (ISSQN) Administration of the Tax: Local municipalities of Brazil, including the Federal District Legal Basis: Article 156 of the Federal Constitution of Brazil. Lei Complementar 116/2003. Municipal Laws and Ordinances Multi Stage Tax: Tax applies at all stages of the service provision process. Tax is Cumulative: In general, ISSQN paid on input services are not deductible Time for Payment: For imports, tax should be paid at the time of import. For local sales, tax is paid on a monthly basis. 5/8/2014 2014 Taxware LLC Slide 39
Brazil's Indirect Tax System: Imposto Sobre serviços de Qualquer Natureza (ISSQN) Standard Rate: 5% for all services not subject to a specific rate under the law. Special Rates: Varies between municipalities. Usually each municipality has between 2 to 4 rates below 5%. Sourcing Rules: Services are considered provided and ISSQN should be paid at the location where the service provider is permanently located. Exceptions exist for certain services (e.g. Construction). 5/8/2014 2014 Taxware LLC Slide 40
CPE Question 4 When do you plan on doing business in Brazil? A. 0-6 months B. 6-12 months C. 12+ months D. We do business in Brazil now Please complete the survey at the end of the webinar to obtain CPE credit. NASBA (National Association of State Boards of Accountancy) requirements for receiving CPE credit: Log in from same e-mail address that you used to register Stay for the full hour Answer all polling questions Answer the required survey questions 5/8/2014 2014 Taxware LLC Slide 41
OBRIGADO! 5/8/2014 2014 Taxware LLC Slide 42