Do you know how taxation works when importing services?

Unraveling Taxes on the Import of Services

In the current scenario, Brazil is experiencing a significant increase in the export of services, especially in the technology and development sector. In 2021, the volume of exports in this segment grew by an impressive 72% compared to the previous year. This boom in demand for Brazilian services is a positive sign, especially considering the economic times we are going through.

However, when planning to import services from Brazil, there is one crucial aspect that foreign companies cannot neglect: taxes. The complexity of the Brazilian tax burden, even by international standards, requires companies interested in contracting services from Brazil to understand the federal, state and municipal charges involved.

Here are the five main taxes that companies need to know before hiring services from Brazil:

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Tax on Financial Operations (IOF)

This tax is levied on the exchange contract, usually at a rate of 0.38%. The IOF is calculated and collected by the financial institution responsible for the exchange operation, representing an additional cost for the Brazilian company providing services abroad.

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Tax on Services of Any Kind (ISSQN)

ISSQN is a municipal tax that arises from the provision of services, whether they come from abroad or begin abroad and end in Brazil. The rates vary between 2% and 5%.

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Social Integration Program and Social Security Financing Contribution (PIS/COFINS)

Although they are often mentioned together, PIS and COFINS are two separate taxes. They are levied when services are provided in Brazil to foreign companies or when services are provided outside Brazil, but with economic repercussions in the country. The rates for PIS and COFINS are 1.65% and 7.60% respectively.

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Contribution and Intervenction in the Economic Domain (CIDE)

This tax, designed to stimulate technological development in Brazil, is levied on the import of services of a technical nature and administrative assistance, at a rate of 10%.

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Withholding Income Tax (IRRF)

IRRF is a federal tax levied on remittances of funds relating to payment for imported services. The standard rate is 15%, but can increase to 25% if the beneficiary is located in a tax haven jurisdiction.

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By navigating the five main taxes that companies need to master before hiring services from Brazil - from Financial Operations Tax (IOF) to Withholding Income Tax (IRRF) - our specialized team offers precise guidance and tailor-made solutions for each client.

Want to find out more about how we can help your company unravel the taxes involved in importing services? Visit our website today and find out how we can make this process easier for you CLM Controller.