Brazil: Tax system

Tax Rate For Foreign Companies

Brazilian resident companies are subject to taxation on their worldwide income. Non-resident companies are generally taxed in Brazil through a registered subsidiary, branch, or permanent establishment, on their Brazilian-sourced income. Non-resident companies may also be subject to withholding tax (IRRF) on Brazilian-sourced income.

Capital Gains Taxation

Capital gains are treated the same way as ordinary income (subject to restrictions on the offsetting of capital losses against ordinary profits in certain cases).

Capital gains derived by a non-resident on an investment registered with the central bank are subject to progressive rates, as follows:

• 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
• a 25% rate applies if the gains are derived by a resident of a tax haven.

Main Allowable Deductions and Tax Credits

In principle, all the expenses necessary for company activity are deductible. Start-up and pre-operational expenses may be deferred and amortised on a straight-line basis over a period of minimum five years. R&D expenditures may be deducted when incurred or deferred until termination of the project and then amortised over a period of not less than five years, at the company's choice. Losses on bad debts are tax-deductible (conditions apply), except for those arising from inter-company transactions. Charitable contributions are deductible if the recipients are registered as charitable institutions (limits apply). Expenses of group medical care and health insurance programmes for employees, as well as contributions to private supplementary pension schemes, are considered deductible if supplied to all employees indiscriminately. When properly documented and substantiated, travel expenses related to business activities can be deductible. Taxes, contributions and related costs are generally deductible on an accrual basis.

Brazilian corporate income tax law allows a deduction for interest on net equity (INE) paid or credited to shareholders, limited to 50% of the current year’s net profit or 50% of the company’s retained earnings, whichever is higher. The amount available for the deduction is computed by multiplying the company’s net equity balance by an official remuneration rate published by the Brazilian Central Bank.
Tax losses can be carried forward indefinitely. Nevertheless, the loss carry-forward is capped at 30% of taxable income (before the deduction of net operating losses). Loss carryback is not permitted.
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 levied in Brazil, including:

• Municipal Property Tax (IPTU): levied annually based on the fair market value of property in urban areas. Rates depend on the municipality and location of the property (generally between 0.3% and 1.5%)
  
• Municipal property transfer tax (ITBI): levied on the transfer of immovable property, with rates varying according to the municipality where the property is located (progressive from 2% to 6%)
• 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, with the general rate set at 0.38%. A maximum rate of 1.88% (calculated using specific methods and conditions) is applied to the principal amount of domestic loans (when the lender is a legal entity). For security transactions, rates vary based on the transaction type, ranging from 0% to a maximum daily rate of 1.5%.
  
• Social Integration Programme (PIS) tax: a federal social contribution calculated as a percentage of revenue; it is levied at the rate of 1.65% (which may be reduced under certain circumstances)
• 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%
• Import Tax: rates generally vary between 10% and 20% (the maximum being 35%)
  
• PIS and COFINS on imports: 1.65% and 7.6% on the import of services, respectively; 2.1% and 9.65%, respectively, on the importation of goods
• 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)
• Social Security Contribution (INSS): generally levied at a rate of 20% over the employees’ payroll (certain entities may be eligible to calculate INSS at a range of 1% to 4.5%, applied on the company’s gross revenue rather than being calculated upon the company’s payroll)
  
• Severance Pay Indemnity Fund (FGTS): levied on an employee's salary at the rate of 8%
• Contribution for Intervention in the Economic Domain (CIDE): levied at the rate of 10% on remittances made by corporate taxpayers for royalties and for administrative and technical services provided by non-residents.

Other Domestic Resources

Federal Revenue of Brazil (RFB)

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

Brazil adopted the IASB's International Accounting Standards on a gradual basis between 2008 and 2010. As a consequence, there are several important changes to the Brazilian accounting practices, the most important of which is that these new accounting practices are required not only in consolidated financial statements but also in the individual financial statements (Law 11638/07). These include the recognition of leasing transactions, depreciation treatment, the recognition of intangible assets, impairment concept etc.

Accounting Regulation Bodies

Regulation of financial institutions, Internet Portal on Brazilian Accounting Resources

Accounting Law

Law nº 6.404 of 15 December 1976 (amended in 1997 by Law No. 9.457, in 2007 by Law No. 11.638 and in 2009 by Tax Law No. 11.941).

Difference Between National and International Standards (IAS/IFRS)

Brazil made the full adoption of IFRS in 2011.

Accounting Practices

Tax Year

From 1 January to 31 December.

Accounting Reports

Financial statements must include at least: a balance sheet, profit and loss statement, statement of cash flows and notes to the financial statements.

Publication Requirements

Commercial companies are required to annually publish a balance sheet, a profit and loss account and all the information necessary to understand the financial health of the company. The documents are required within the 60 days preceding the shareholders' Annual General Meeting.

Accountancy Profession

Accountants

There are no real differences compared with most other countries. Qualified chartered accountants, working independently or for an accounting practice, must certify the company accounts.

Professional Accountancy Bodies

CFC, Federal Accountancy Council
CPC, Accounting Pronouncements Committee

Member of the International Federation of Accountants (IFAC)

Yes

Member of Other Federation of Accountants

Member of IASB.

Audit Bodies

Independent auditors and international firms are registered with the Instituto Brasileiro de Contadores. Financial statements are controlled by an independent auditor registered with the 'Securities and Exchange Commission' or the 'Instituto Brasileiro de Contadores'. Approximately half of the audits in Brazil are carried out by international audit firms. The present trend is towards an increase in the number of companies audited, even those which are not required to be audited. The guarantee of quality arising from a certification represents a considerable advantage for Brazilian companies.

Allowable Deductions and Tax Credits

When calculating monthly tax liability, the following expenses are deductible: social security and pension contributions to government entities, alimony and pension amounts decreed by court, dependent allowance (determined every year, BRL 2,275 in 2024), tuition expenses (up to BRL 3,561.50 per dependant), medical expenses, contributions made by the taxpayer to the official social security system, private pension contributions (if the entity is located in Brazil) made by the beneficiary and for one's dependents (capped at 12% of gross taxable income). Some deductions, such as those for dependants, alimony, and Brazilian official social security contributions are allowed on a monthly basis.

Some items can be deducted from the tax due rather than from the calculation base, such as: donations made to official government, state, and/or municipal childcare entities and elderly funds; certain qualified contributions to cultural, audio-visual, and sports projects (capped at 6% of the tax due); contributions to health programs related to cancer and mentally handicapped support (capped at 1% of the tax due); private pension contributions made by the beneficiary and for one's dependents (capped at 12% of gross taxable income).

The following items are exempt from income tax: employer-provided meals, transportation, and work uniforms; per diem allowances for working outside the company's base county; labour indemnities within legal limits, including for accidents; employer contributions to private social security programs, subject to conditions; relocation cost reimbursements when moving at the employer's request; and the Severance Indemnity Fund (FGTS).

When calculating annual federal income tax liability, instead of itemised deductions taxpayers may elect for a standard deduction of 20% (up to BRL 16,754.34 in 2024, with this amount being reviewed each year).

Individuals with a business income (non-employees) may deduct the expenses necessary to produce the business' revenue, investments and expenses to maintain the business, and payments made to third parties who have an employment relationship with the respective payroll charges.

Special Expatriate Tax Regime

Resident individuals are taxed on their worldwide income. Non-residents are taxed only on income from Brazilian sources. Income source is determined by the location of the income payer, regardless of where the work is carried out.

Non-residents of a non-treaty country are liable for a flat rate of 25% tax on their income earned in Brazil (no deductions are allowed). Rental income received from a property located in Brazil is taxed at 15%. Income received abroad by non-residents is tax-exempt.

Capital Tax Rate

Social security contributions on Brazilian-source income are due by employees each month. Brazil's Ordinance No. 2, published on 11 January 2024, establishes the progressive social security contribution table for 2024 with rates of 7.5% for income up to BRL 1,412.00, 9% for BRL 1,412.01 to 2,666.68, 12% for BRL 2,666.69 to 4,000.03, and 14% for BRL 4,000.04 to 7,786.02. It also sets the minimum and maximum contribution bases for 2024 between BRL 1,412.00 and BRL 7,786.02. These changes account for the increase in the minimum monthly salary from BRL 1,320 to BRL 1,412, effective from 1 January 2024. Self-employed individuals may pay 5%, 11%, or 20% of the ceiling contribution salary, according to personal and sectorial parameters.

Capital gains tax applies to the sale of real estate, vehicles, art, and collectibles sold in Brazil or abroad, stocks sold in foreign markets, and interest income from offshore investments. Non-residents are only taxed on gains from assets in Brazil. The gain, calculated as the excess of the sale price over the cost, is taxed at 15%, with exemptions for tax residents. From 1 January 2017, gains exceeding BRL 5 million are taxed at higher rates, from 17.5% up to 22.5% for gains over BRL 30 million.
Stocks sold in Brazilian markets or over the counter (OTC) are subject to equity income taxation. Gains from stock sales on the Brazilian stock exchange are taxed at a flat rate of 15%, except for day-trade transactions, which are taxed at 20%. Certain exemptions also apply.

A state estate and gift tax (Imposto sobre Transmissão Causa Mortis e Doações - ITCMD) of up to 8% is applicable on transfers of real estate by donation or inheritance. For resident foreigners and non-residents, this tax applies to assets located in Brazil only.

The Urban Property Tax (IPTU) is an annual tax based on the fair market value of urban properties, with rates varying by municipality and property location. In São Paulo, residential properties are taxed at a basic rate of 1%, while commercial properties are taxed at 1.5%, adjustable based on property value.

The Inter Vivos Property Transfer Tax (ITBI) is levied on the transfer of immovable property, with rates varying by municipality. The tax, up to 3%, is payable by the buyer or transferee on real estate sales or transfers.