In this post, we present an overview of taxes in Brazil. Check it out and stay inside!
Brazil is among the countries in the world with the highest tax rate. About 38% of the national economy is earmarked for paying taxes.
In all, considering federal, state and municipal taxes, fees and contributions, Brazil has 92 taxes in force.
Contributions and fees are related to public services such as sewage fees, public lighting and others. Taxes are all types of financial charges present on consumer goods, income or property.
These taxes are levied directly or indirectly and all taxpayers are subject to several of them.
Tax Complexity in Brazil
Brazil has a wide range of different taxes, as well as maintaining a continuous stream of regulatory changes, registering around 51 new tax rules each business day.
In addition to national taxes, which are the responsibility of the Federal Revenue Service of Brazil, there are state and municipal taxes, which are the responsibility of states and municipalities.
A study carried out by the World Bank in 2017 showed that Brazilian taxpayers take about 1501 hours to calculate taxes, while the average in other countries is 158.8 hours. ICMS alone takes around 885 hours a year from companies.
This dedicated time does not refer only to the payment of these taxes, but to ancillary obligations, such as issuing statements that must be delivered to the tax authorities on a regular basis, informing the composition of the calculation bases and the details of the operations. In addition to issuing documents, specific controls of some taxes, bookkeeping, file storage and other services.
Companies operating in the national territory need to stay informed about taxes and regulatory changes applied in each location.
For this, it is important to invest in the constant updating of the professionals responsible for tax calculations. Or even rely on the services of a specialized and experienced company, such as CLM Controller.
How are collections made on Taxes in Brazil?
The Federal Constitution is the document that governs the creation of taxes, which federative entities are responsible for the collection and how the resources collected through them should be distributed.
In addition, there are a number of supplemental federal laws that regulate collection. States and municipalities have the autonomy to establish their own rules for those taxes that are their responsibility.
Specific or direct taxes are fixed in monetary terms. That is, they are charged with a regularity that can be monthly or annually and already have a defined percentage. Income tax (IR) is a good example. Its rate is established according to the citizen’s annual income.
Value-added or ad valorem taxes are indirect, as they are levied on the value of goods. If, for example, you buy a product and it needs to be transported, the percentage referring to the coverage of freight insurance costs will be added to the freight cost. It is not a fixed value, but calculated based on factors such as distance, weight and size of the product, among others.
Examples are the Tax on Industrialized Products (IPI) and the Tax on Circulation of Goods and Services (ICMS).
We also have the social contributions that include, for example, the resources that are destined to the Social Integration Program (PIS). Social contributions owed by companies in general, except for those that opt for the Simples Nacional, are levied on the remuneration paid and are charged monthly.
What is the difference between federal, state and local taxes in Taxes in Brazil?
Federal, state and municipal taxes have as main difference the fact that they are destined to keep their respective public machines in operation.
Federal taxes account for about 60% of the total taxes collected across the country. They have a greater number and are also the most recognized. In general, they are intended for the maintenance of Federal Government services.
State taxes, on the other hand, are directed towards maintaining the state administration and financing public services in the state, such as investments in infrastructure for schools, highways, etc. They correspond to about 28% of the total tax collection.
Finally, municipal taxes are earmarked for local public administration. They are applied in the maintenance of services and general investments in schools, health units, etc. They correspond to 5.5% of the total collected in the country.
Taxes in Brazil: To whom are federal, state and local taxes paid? Where do they go?
Taxes are collected by municipal, state and Federal Governments and are levied by the generating factor of each one. The generating factor II, for example, which refers to the Import Tax, occurs when the product in question arrives at customs.
In general, the resources collected through taxes are intended for the public good, financing Social Security, public health and social security programs, maintenance of the country’s physical and administrative infrastructure.
Below, we show which taxes are levied in Brazil divided into federal, state and municipal taxes.
- II: Imposto sobre importação, para mercadorias vindas de fora do país;
Import tax, for goods coming from outside the country;
- IRPF: Imposto de Renda Pessoa Física, sobre a renda do cidadão;
Individual Income Tax, on the citizen’s income
- IRPJ: Imposto de Renda Pessoa Jurídica, sobre a renda de CNPJs;
Corporate Income Tax, on the income of CNPJs;
- Cofins: Contribuição de financiamento da seguridade social;
Social security financing contribution;
- PIS: Programa de Integração Social;
Social integration program;
- CSLL: Contribuição social sobre lucro líquido;
Social contribution on net income;
- INSS: Instituto Nacional do Seguro Social;
National Institute of Social Security;
- IOF: Imposto sobre operações financeiras, para empréstimos, ações e demais ações financeiras;
Tax on financial transactions, for loans, shares and other financial actions;
- IPI: Imposto sobre produtos industrializados, para a indústria.
Tax on industrialized products, for industry.
- ICMS: Impostos sobre circulação de mercadorias e serviços;
Taxes on the circulation of goods and services;
- IPVA: Imposto sobre a propriedade de motores automotores;
Tax on the property of automotive engines;
- ITCMD: Imposto de transmissão causa mortis e doação.
Transmission tax causes death and donation.
- IPTU: Imposto sobre propriedade territorial urbana;Tax on urban territorial property;
- ITBI: Imposto de transmissão de bens imóveis;
Real estate transfer tax;
- ISS: Imposto sobre serviços.
Tax on services.
In the Tributary Portal it is possible to check the complete list of taxes and also the fees and contributions.
If you have any questions about the subject, please contact the CLM Controller team. Take the opportunity to discover our services.