Legal Guide for Foreign Investors in Brazil - Apex-Brasil

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Legal Guide for Foreign Investors in Brazil 8. Tax System 8.1. General Features The Brazilian Federal Constitution, promulgated on October 5, 1988, confers upon the Federal Union, the States, and the Municipalities power to levy taxation. In Brazil taxation may take the form of taxes, fees, betterment fees, other contributions, and compulsory loans. Taxation may be instituted by any of the three levels of government, in accordance with specific powers conferred under the Constitution. Fees collected at the three levels, are used to fund services such as law enforcement, and other collective public services delivered or provided to the taxpayer. Betterment fees (though as yet not commonly levied) may be collected from the property owners that benefit from execution of public works. Contributions can only be levied by the Federal Government. There are (a) social contributions (payroll charges); (b) contributions to intervene in the economic domain, (c) contributions in the interest of professional or economic categories, and (d) contributions to finance social security. Compulsory loans can be instituted only by the Federal Government, to defray urgent public investment of relevant national interest, or extraordinary expenses resulting from public calamity or foreign wars. Unless otherwise expressly stated in the Constitution, the imposition and collection of taxation must comply with certain fundamental constitutional rules, including: - the principle of legality (whereby taxation may only be levied or increased by enacted law); - the rule of equality (whereby taxpayers in equivalent situations must receive identical tax treatment); - the principle of non-retroactivity (whereby taxation cannot be levied on events that occurred prior to entering into force of the law that created a new tax or which increased rates or the base of computation of existing ones); - the principle of precedence (whereby taxes cannot be collected in the same fiscal year in which the law that created them or increased their rates was 71
Legal Guide for Foreign Investors in Brazil published, nor prior to ninety days of said publication. Contributions, on the other hand, can be collected in the same fiscal year, but must respect the ninety-day deadline); - the principle of non-confiscation (whereby taxation cannot be confiscatory). 8.2. Federal Taxes Only the Federal Government may levy the following taxes: Import Duties (II); Export Duties (EI); Income and Capital Gains Tax (IR); Tax on Industrialized Goods (IPI); Tax on Credit, Exchange and Insurance, or on Securities Transactions (IOF); Tax on Rural Land (ITR), and Tax on Large Fortunes (IGR). 8.2.1. Income Tax Income tax (Imposto de Renda – IR) is assessed on income and wealth increases of resident individuals from domestic or foreign sources at rates of 15% and 27.5% (depending on the income bracket), and on capital gains of corporate entities at the rate of 15%; Corporate income tax is assessed on profits and capital gains generated by operations in Brazil or abroad. It is normally assessed on net profits of the company (other applicable basis are assumed profit and arbitrated profit). Taxable income is equal to net profits (ascertained in quarterly or annual balance sheets) adjusted for additions and deductions set forth in income tax legislation. Corporations taxed on the basis of net profit may choose to pay tax in monthly installments, on the basis of estimates, provided they observe certain conditions established in income tax legislation. The current corporate income tax rate is 15%, whether calculated on net profit, assumed profit, or arbitrated profit, whatever the company’s business. A 10% supplementary tax is applicable to the portion of net profits which exceeds R$ 20,000 per month. Profits or dividends assessed as of January 1, 1996, paid out or credited to individuals or corporations domiciled in Brazil or abroad, are no longer subject to income tax (either withheld at source or due on taxpayer’s return) regardless of whether assessed on the basis of net profit, assumed profit, or arbitrated profit. Withheld income tax (Imposto de Renda na Fonte – IRF) is due on income paid, 72
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Legal Guide for Foreign Investors in Brazil - Apex-Brasil

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