11.1. a 11.21. Taxation in general (taxes, fees and contributions)

11.1. Local taxation – introduction

Historically, Brazilian tax legislation is complex. Despite of the government’s efforts to reduce and simplify the Brazilian tax system there still exists a large number of taxes and pulverized rules currently in force. This chapter briefly addresses the main taxes that are levied in the businesses conducted with Brazil, as well as the most important aspects related to the taxation of the individual’s income in Brazil, which also affects non-residents and, more particularly, the expatriates.

11.2. Individual Income Tax (“IRPF”)

Brazilian law distinguishes resident from non-resident individuals. Generally, a resident in Brazil is the individual who resides in Brazil permanently or an individual who enters the country with permanent or temporary visa (to work in Brazil with employment tie or after 184 days of stay). As regards foreign individuals, however, specific rules are applied, as quoted below.

11.2.1. Payments to Non-Resident Individuals

As a general rule, remuneration paid by a Brazilian source for services supplied by non-resident individuals is subject to withholding income tax at the rate of 15 % or 25 %, depending on the nature of the service.

11.2.2 Visas

As of January 1st, 1999 individuals that hold temporary visas are considered residents for tax purposes upon their entry in Brazil to work pursuant to a labor agreement. Thus, they are required to file an annual income tax report, also stating their foreign income. The payments are subject to progressive income tax at the rate of 0%, 7.5%, 15%, 22.5% or 27.5% (maximum tax rate).

Further, individuals that hold temporary visas who enter Brazil for any other reason other than to work under a labor agreement are considered residents for tax purposes after a permanence of 183 days in a 12-month period as of the date of entry.

11.2.3 Non-Residents

Expatriates treated as non-residents are subject to Brazilian income tax only in regard to the income earned from Brazilian sources, whether individuals or companies.

The Brazilian source of income pursuing from salaries and remuneration is subject to a standard withholding income tax of 25% while capital gains are subject to a 15% withholding income tax. This taxation may be reduced in cases where a treaty to prevent dual taxation applicable to the case exists. As of January 1st, 2017, the taxation of the Income Tax over the capital gain earned as a result of the disposal of assets and rights of any nature will be subject to the following progressive rates: 15% over gains that do not exceed R$ 5,000,000.00; 17.5% over gains that exceed R$ 5,000,000 but do not exceed R$ 10,000,000.00; 20% over gains that exceed R$ 10,000,000.00 but do not exceed R$ 30,000,00.00; and 22.5% over gains that exceed R$ 30,000,000.01. The rate is increased to 25% on the total gain if the beneficiary is resident/domiciled in a jurisdiction with favoured taxation.

As a general rule, income tax withheld at source in Brazil can be offset against tax owed by the same taxpayer in another jurisdiction when there is a treaty to avoid double taxation applicable to the specific case or reciprocity between the jurisdictions involved.

The tax is usually based on gross income, net of any deductions, being due upon the crediting, availability or use of the resources on behalf of the non-resident or remittance thereof to the non-resident, whichever occurs first.

11.2.4. Individual who becomes a non-resident

Individuals residing in Brazil who retire permanently from Brazil in the course of the calendar year must file the following documents in order to formalize such condition: (i) the Definitive Country Exiting Statement, relative to the period in which he/she remained as resident in Brazil during the calendar year of exit, until the last working day of April of the calendar year following the departure; (ii) the income tax returns relating to previous calendar years, in case of tax due; and (iii) the Definitive Country Exiting.

In case income tax is due, amounts related to specific contributions and expenses can be deducted.

If the individual leaves permanently from Brazil without filing the Definitive Country Exiting Statement and the Definitive Country Exiting, the income earned by the individual will be taxed by income tax at the progressive rates applicable to residents of Brazil (7.5% to 27.5%) during the first 12 (twelve) months from the date of exit, and, as from the 13th (thirteenth) month, by the income tax at the rates of 0%, 15% or 25% depending on the nature of the income.

11.2.5. “IRPF” – progressive tax rates

Brazilian residents are subject to the payment of income tax on their global income with progressive tax rates, which vary according to the specific class in which the taxpayer is classified, based on the overall taxable net profit earned.

The current tax rates in 2024 are as follows: (i) 0% for monthly income whose value does not exceed R$ 2,259.20; (ii) 7,5% for monthly income from R$ 2,259.21 to R$ 2.826,65 (iii) 15% for monthly income from R$ 2,826.66 to R$ 3,751.05; (iv) 22,5% for monthly income from R$ 3,751.06 to R$ 4,664.68 and; (v) 27.5% for monthly earnings over the figure of R$ 4,664.68.

11.3. Corporate Income Tax (“IRPJ”)

Basically, there are two main mathods that Brazilian taxpayers may opt to calculate the corporate income tax: (i) actual profits method and; (ii) presumed method. Regarding the first method, the IRPJ is computed at a 15% rate on adjusted net income. Annual net income in excess of BRL 240,000 is also subject to a surtax of 10%

According to Law No. 9,430 of December 30, 1996 the taxpayer may elect to calculate the IRPJ under the actual profits method on an annual or quarterly basis. If the IRPJ is calculated quarterly, it may also be paid on a quarterly basis. Over the quarterly net income, a 15% tax rate should be levied, plus an additional rate of 10% over the net profit that exceeds R$ 60,000.00 per quarter. On the other hand, if the IRPJ is calculated on an annual basis, the taxpayer advances the monthly payments of the IRPJ, calculated based on an estimated income (or by means of the profit obtained by the analysis of monthly balance sheets).

In the case of electing the actual profit method, with payment of monthly anticipations, the entities at the end of the year must either pay or request reimbursement for the difference between the amount paid monthly and the one calculated on annual income.

For taxpayers that have adopted the actual profit method, net operating losses (“NOLs”) generated in a given period can offset the taxable income of the subsequent period, limited to 30% of the taxable income (i.e., for each BRL 1 of income, BRL 0.70 must be subject to taxation, regardless of the existing amount of NOL). Tax losses may be carried forward, without statute of limitations.

Considering the second method (i.e.presumed method), to a large number of companies the monthly presumed profit corresponds to 8% of the total monthly gross revenues plus capital gains, earnings and eventual other revenues. Such percentages ranges from 8% to 32% according to the economic activity in which the taxpayer is engaged. A tax rate of 15% applies over this tax basis, plus a surtax of 10% over the presumed profit that exceeds R$ 20,000.00 per month.

The following tax rates of income tax apply over the presumed profit: 15% income tax plus an additional 10% over the amount that exceeds R$ 60,000.00 per quarter. If the method of presumed profit is adopted to calculate the income tax the taxpayer is not subject to adjustment of the annual income tax that is asserted. There is also no record of accumulated tax losses in this case.

However, the possibility of adopting the presumed profit method is subject to the fulfillment of certain conditions, such as:

incomes asserted in the preceding year cannot exceed R$ 78,000,000.00 (or R$ 6,500,000.00 multiplied by the number of months in business in the previous calendar year, if less than 12 months);
• the profit, capital gains or other gains cannot have a foreign origin;
• financial institutions or similar organizations, as determined in Brazilian law, cannot adopt the presumed profit method for income tax purposes;
companies with securitization activities for real estate, financial and agribusiness credits
• companies cannot be beneficiaries of tax incentives granted under Brazilian law (e.g. tax exemption or reduction of income tax);
• companies cannot have paid income tax calculated based on a monthly estimate;
• “factoring” companies cannot adopt the presumed profit method; and

11.4. Social contribution on net profit (“CSLL”)

In addition to Corporate Income Tax (IRPJ) the Brazilian companies are subject to the payment of the social contribution on the net profit (“CSLL”). The current tax rate is 9%, with the exception of financial institutions that, due to Law No. 7.689/1988 and 13,169/2015, as well Constitutional Amendment No. 103/2019, are currently subject to a CSLL rate of 20%.

CSLL is levied separately form the IRPJ given that the CSLL is paid to the Social Security and not to the Brazilian Federal Revenue, which collects the IRPJ.

The tax basis of the CSLL is the net profit specifically calculated for the CSLL payment purposes. The calculation basis for CSLL is subject to calculation upon the definition of the taxable income or presumed profit (upon application of the percentage that varies pursuant to the activity performed, being such percentage applicable on the gross revenue obtained by the legal entity), as per the criteria defined by the taxpayer.

Similar to IRPJ, the taxpayers that have adopted the taxable income may calculate the CSLL on an annual or a quarterly basis. In the event the calculation of the CSLL is performed on an annual basis, the payments must be made based on an estimate. The same rules applicable to IRPJ applies in this case. In other words, in case the CSLL is due on an annual basis, the monthly payments and the accrual upon the ending of the calendar-year are mandatory, in such a way that it is possible to offset an eventual negative balance with other federal taxes or even to request a tax refund before the Federal tax authorities.

The legislation establishes that the CSLL can no longer be deducted from the net profit for the purposes of calculating IRPJ.

The negative tax basis of the CSLL (tax loss for CSLL purposes) may be used to offset the taxable profit in the subsequent periods, limited to 30% of the taxable profit in each calculation period. Similar to what occurs in regard to the tax loss for IRPJ purposes, the negative tax basis of the CSLL may be used by taxpayers that have adopted the taxable income to offset a future taxable income, without a transient limit for the expiration for usage of these amounts.

For the taxpayers that have adopted the presumed profit, the calculation of CSLL shall be performed on a quarterly basis, constituting the calculation basis of 12% or 32% over the gross income, depending on the specific activities carried out by the company). The rate of 9% is applicable to the presumed profit. If the presumed method of taxation is adopted, the taxpayer will not be subject to any adjustment according to the actual profits method.

11.5. The new transfer pricing rules

In December 2022, Provisional Measure n. 1,152 was issued, aiming at adapting the Brazilian transfer pricing system to international standards. In this sense, the main scope of this change was to align the Brazilian rules to the “arm’s length” principle and the international guidelines issued by the Organization for Economic Cooperation and Development (OECD).

In June 2023, the mentioned Provisional Measure was converted into Law 14.593/23 and the changes were definitely introduced into the Brazilian legal system.

The application is mandatory for all taxpayers since the beginning of 2024. However, by means of Normative Instruction 2,161/23 “IN 2.161’ (which regulated the new transfer pricing system introduced in Brazil), the Brazilian Federal Revenue Service also provided for the early adoption of the new rules, in calendar year 2023. Early adoption was irreversible and the option was made by taxpayers between 1st September and 31st December 2023º, through the e-CAC Portal, by means of the option form in Annex VI of the Normative Instruction.

11.5.1. The arm’s length principle

The arm’s length principle states that the terms and conditions of a controlled transaction have to be established in accordance with those that would be established between unrelated parties in comparable transactions.

The verification that the terms and conditions of a transaction are in accordance with the arm’s length principle is done through two actions: the delineation of the controlled transaction and the analysis of the comparability of the controlled transaction.

11.5.2. Definition of controlled transactions

For the application of the rules provided in Law 14,596/2023 and IN 2,161, controlled transaction covers any commercial or financial relationship established or carried out between two or more related parties (with at least one resident abroad), directly or indirectly, included contracts or arrangements in any form and series of transactions.

11.5.3. Concept of related parties

Law 14,596/2023 and IN 2,161 states that are considered related parties for purposes of the transfer pricing rules if at least one of them is subject to influence, directly or indirectly exercised by another party, which may lead to the establishment of terms and conditions in its transactions that differ from those that would be established between unrelated parties in comparable transactions. Thus, related parties are as follows:

the controlling company and its controlled companies;
the entity and its business unit, when this unit is treated as a separate taxpayer for corporate income tax purposes, including the parent company and its branches;
the affiliates;
the entities included in the consolidated financial statements, or that would be included if the final controlling company of the multinational group of which they are part prepares such statements if its capital were negotiated in the securities markets of their residence jurisdiction;
the entities, when one of them has the right to directly or indirectly receive at least 25% (twenty-five percent) of the profits of the other or of its assets in case of liquidation;
the entities that are directly or indirectly under common control or where the same quotaholder, shareholder or holder has 20% (twenty percent) or more of the net equity of each of them;
the entities where the same shareholders or quota holders, or their spouses, partners, blood relatives or similar, within the third level, have at least 20% (twenty percent) of the net equity of each of them;
the entity and the individual that spouse, partner or blood relative or similar, within the third level, of a counselor, director, or controlling of that entity; and
the legal entity resident or domiciled in Brazil and any entity, even if unrelated, resident or domiciled in a country that does not tax income or that taxes it at a maximum rate lower than 17% (seventeen percent), as well as transactions carried out by an individual or legal entity resident or domiciled in Brazil with any entity resident or domiciled abroad that is a beneficiary of a privileged tax regime.

In addition, the controlled relationship between the parties will be characterized when one entity:

hold, directly or indirectly, individually or together with other entities, including due to the existence of voting agreements, rights that ensure to them a preponderance in the corporate resolutions or the power to elect or dismiss the majority of administrators of another entity;
directly or indirectly participates in more than fifty percent of the net equity of another entity; or
holds or exercises the power to directly or indirectly manage the activities of another entity.

11.5.4. Delineation of the controlled transaction

The delineation of the controlled transaction will be made based on the analysis of the facts and circumstances of the transaction, as well as on the effective conduct of the parties and the economically relevant characteristics of the transaction.

The contractual terms of the transaction, the functions performed by the parties of the transaction, the specific characteristics of the goods, rights or services that are the subject matter of the controlled transaction, the economic circumstances of the parties and the market in which they operate; the business strategies and other economically relevant characteristics will also be taken into consideration.

Moreover, the delineation of the controlled transaction will consider the options realistically available to each of the parties to the controlled transaction, in order to assess the existence of other options that could have generated more advantageous conditions for any of the parties and that would have been adopted if the transaction had been carried out between unrelated parties, including the non-performance of the transaction.

The controlled transaction may be disregarded or replaced in cases where it is proven that unrelated parties, acting in comparable circumstances and behaving in a commercially rational manner, considering the options realistically available to each party, would not have entered into the controlled transaction as outlined.

11.5.5. The comparability factors

The comparability factors that should be considered for delineation the controlled transaction and the comparability analysis are:

the contractual terms of the transaction, which derive both from the documents and formalized contracts and from the evidence of the actual conduct of the parties;
the functions performed by the parties to the transaction, considering the assets used and the economically significant risks assumed;
the specific characteristics of the goods, rights, or services that are the subject of the controlled transaction;
the economic circumstances of the parties and the market in which they operate;
business strategies; and
other characteristics considered economically relevant.

11.5.6. Comparability analysis of the controlled transaction

The comparability analysis will be performed to compare the terms and conditions of the controlled transaction with the terms and conditions that would be established between unrelated parties in comparable transactions, considering:

the economically relevant characteristics of the controlled transactions and of the transactions with unrelated parties;
the date when the controlled transaction and the transactions between unrelated parties were conducted, in order to ensure that the economic circumstances of the transactions that are intended to be compared are comparable;
the availability of information on transactions between unrelated parties, which allows the comparison of its economically relevant characteristics, aiming to identify the more reliable comparable transactions conducted between unrelated parties;
the selection of the best method and of the financial indicator to be examined;
the existence of uncertainties in the existing pricing or assessment at the moment of the execution of the controlled transaction and if such uncertainties were addressed as unrelated parties would have done under comparable circumstances, considering also the adoption of appropriate mechanisms;
the existence and relevance of the group synergy effects.

11.5.7. The typical steps of comparability analysis

The performance of the comparability analysis, as a rule, includes the following steps:

the determination of the period to be covered in the analysis;
the verification of the existence of internal comparables;
the identification of available sources of information on external comparables, when their use is necessary, and taking into account their relative reliability and limitations regarding the specificity and quality of the data;
the selection of the most appropriate method and, depending on the method, the choice of
the profitability indicator and the tested party;
the identification of potential comparables, including the determination of the essential characteristics that must be present in any transaction between unrelated parties to be considered potentially comparable, given the delineation of the controlled transaction and the comparability factors;
identifying and making reasonably accurate comparability adjustments; and
the interpretation and use of the data collected with the determination of the appropriate remuneration.

There is a preference for using internal comparables (consisting of transactions carried out between unrelated parties where one of the parties is also a party to the controlled transaction) and domestic comparables (transactions carried out in the same geographical region as the tested party). However, the use of internal or external comparables, as well as domestic or non-domestic comparables must be evaluated on a case-by-case basis, considering the facts and circumstances of the transaction, the degree of comparability of the transactions in view of their economically relevant characteristics, and the reliability of the information available to carry out the comparability analysis.

Moreover, in specific circumstances, it may be necessary to evaluate two or more transactions in combination when the transactions are intrinsically linked or continuous, in such a way that the combined evaluation produces a more reliable result.

11.5.8. Comparability adjustments

Reasonably precise comparability adjustments shall be made to eliminate the material effects of differences in relation to the controlled transaction or tested party. Examples of comparability

adjustments that must be made depending on each case are:
adjustments to accounting standards and consistency, including exchange rate adjustments;
adjustments for differences in functions, risk-taking, assets and capital, including working capital;
adjustments to the contractual terms, including, for example, the conditions of sales (e.g. volume, payment term, and International Commercial Terms – Incoterm), conditions for amortization or early settlement of debt, and contractual options;
adjustments to the financial statements to segment its activities, including the elimination of non-comparable or related-party transactions;
adjustments to the characteristics of goods and services;
adjustments for market differences, including country risk adjustments; and
netback adjustment.

11.5.9. The application of the transfer pricing methods

The new legislation establishes the “best method rule”, which is nothing more than the choice of the most appropriate method for a given transaction, that is, the one that provides the most reliable determination of the terms and conditions that would be established between unrelated parties in a comparable transaction.

Thus, unlike what happened in the previous legislation, in which the taxpayer chose his preferable method, currentlyis necessary to apply the most appropriate method.

In this scenario, the methods available in Law 14.596/23 are the following:

Comparable Uncontrolled Price Method – (CUP)
Resale Price Method (RPM)
Costs Plus Method – (CPM)
Transactional Net Margin Method- (TNMM)
Profit Split Method (PSM)
Other methods

1. Comparable Uncontrolled Price Method – (CUP)

PIC consists of the evidence of the price or the value of the consideration of the controlled transaction with the prices or the values of the consideration of comparable transactions carried out between unrelated parties.

In addition, it will be considered the best method when there is reliable information on prices or consideration amounts resulting from comparable transactions conducted between unrelated parties unless it is possible to establish that another method is applicable in a more appropriate manner.

In relation to commodities, the PIC shall be considered the most appropriate method, unless it can be established that another method is more appropriately applicable, based on the analysis of variants such as facts, circumstances, functions and risks of the transaction.

2. Resale Price Method (RPM)

This methods consists in comparing the gross margin that an acquirer of a controlled transaction obtains from the subsequent resale made to unrelated parties to the gross margins obtained from comparable transactions conducted between unrelated parties;

The RPM method is generally more appropriate for transactions whose nature is commercial, and its reliability will generally decrease as the reseller adds value to the object of resale through the performance of additional functions, including processing, or when the reseller has participated in the development, maintenance, or use of intangibles associated with the product that are held by a related party.

3. Cost Plus Method (CPM)

Basically, it draws a comparison between the gross profit margin obtained on the supplier’s costs in a controlled transaction to the gross profit margins obtained on the costs in comparable transactions conducted between unrelated parties.

The CPM method is generally more appropriate for controlled transactions consisting of the supply of semi-finished products or the provision of services.

4. Transactional Net Margin Method- (TNMM)

This method compares the net margin of the controlled transaction with the net margins of comparable transactions between unrelated parties, both calculated on the basis of an appropriate profitability indicator.

This method is often applied when analyzing the operational profit relative to an appropriate base, i.e., costs, sales and operating expenses that the taxpayer realizes in a controlled transaction.

It is also important to take into account the functional analysis (functions, assets, and risks), the comparability benchmark to be applied to the method, as well as the selection and calculation of the profit level indicator.

5. Profit Split Method (PSM)

This is the division of profits or losses, or part thereof, in a controlled transaction according to what would be established between unrelated parties in a comparable transaction, considering the relevant contributions analyzed in the form of functions performed, assets used and risks assumed by the parties involved in the transaction.

Thus, it is noted that this method aims to eliminate the effect over profits arising from special conditions performed or imposed in a controlled transaction, determining the division of profits that the independent companies would have aimed to obtain when engaging in a comparable transaction.

Its application must be based on the identification of the profits to be divided for related companies from intercompany transactions, as well as from the division of profits obtained jointly among related parties on an economically valid basis that would have been established in an independent transaction.

6. Other Methods

In addition to the methods set forth in the Law, other methods may be established since the alternative methodology adopted produces a consistent result with that which would be achieved in comparable transactions performed between unrelated parties.

In this case, it must be demonstrated by the transfer pricing documentation that the foreseen methods are not applicable to the controlled transaction, or that they do not produce reliable results, and that the other selected method is deemed more appropriate.

11.5.10. Transfer Pricing Adjustments

When the terms and conditions established in the controlled transaction diverge from those that would be established between unrelated parties in comparable transactions, transfer pricing adjustments may be applied in order to compute the results that would be obtained if the terms and conditions of the controlled transaction had been established according to the arm’s length principle. In these cases, the new legislation introduced the following types of transfer pricing adjustments:

– Spontaneous Adjustment, made by the entity domiciled in Brazil directly in determining the IRPJ/CSLL tax base, by adding the result that would have been obtained if the terms and conditions of the controlled operation had been established according to the arm’s length principle (applies only to increase the IRPJ/CSLL tax base).

– Compensatory Adjustment, made by the parties involved in the controlled operation up to the date of submission of the ECF, which must normally take place by the last working day of July following the tax year to which it refers (but which must be recorded in the Brazilian taxpayer’s Bookkeeping for the year to which the adjustment refers). This adjustment allows the financial flow between the parties to the tested operation, avoiding the need for adjustments made exclusively when calculating IRPJ/CSLL. In theory, it is feasible to increase or decrease IRPJ/CSLL taxation in Brazil, provided all the requirements of the regulations in force are met;

– Primary Adjustment, understood as that made by the Brazilian tax authority, with the purpose of adding to the IRPJ/CSLL tax base the results that would have been obtained by the Brazilian entity if the terms and conditions of the controlled operation had been established in accordance with the arm’s length principle.

11.5.11. Transactions with intangibles

Controlled transactions with intangible assets should be based on the arm’s length principle and economically relevant characteristics. Also, they should be measured based on the contributions provided by the parties, and, in particular, on the relevant functions performed in relation to the intangible and the economically significant risks associated with these functions. • The controlled transactions with intagibles must also observe the assets used, the risk control and the financial capacity of the taxpayer.

Furthermore, with regard to intangibles that are difficult to value, based on OECD rules, it is obligatory that the prices adopted reflect the uncertainties arising from the pricing or valuation of the intangible. It is also established that the uncertainties must be evaluated in the same way that independent parties would evaluate them in analogous situations. Finally, for this kind of intangible, tax parties can use data that becomes available after the controlled transaction for evidence purposes, subject to proof to the contrary, as to the existence of uncertainties at the time of the transaction.

11.5.12. Intragroup Services

The legislation considers the provision of services as “any activity developed by a party, including the use or provision by the provider of tangible or intangible assets or other resources, that results in benefits for one or more parties.”

The benefits necessary to configure intra-group services have to provide a reasonable expectation of economic or commercial value to the other party of the controlled transaction, in a way that independent parties would also be willing to adopt them.

11.5.13. Low-value-added intragroup services

In the case of a controlled transaction consisting of the provision of low value-added services (SBVA), the taxpayer may opt for a simplified approach, according to which the remuneration for such services will have a gross profit margin, calculated on the total direct and indirect costs related to the transaction, of:

at least 5% (five percent), in cases where the service provider is a legal entity domiciled in Brazil;
a maximum of 5% (five percent), in cases where the provider is a related party abroad;

It will be considered low value-added services only the services that:

have a support nature;
are not part of the main activities of the related party or group;
do not require the use of unique and valuable intangible assets and do not contribute to their creation;
do not involve the assumption or control of economically significant risks by the service provider and do not lead to the creation of such significant risk for the service provider; and
do not contribute significantly to the creation, enhancement, or maintenance of value in the MNE Group, to the core capabilities or to the chances of success of the MNE Group’s business.

In this context, these services are examples of low value-added services:

human resource management services;
accounting, auditing, account processing and management services;
legal services;
information technology (IT) services that are not part of the group’s core business, for example, the installation, maintenance and updating of IT systems used in the business, training on the use or application of information systems or the development of IT guidelines; and
other general services of an administrative or office nature.

Low value-added services are not considered those that the multinational group also provides to unrelated parties.

Low value-added services do not include:

services that constitute one of the main business activities of the multinational group;
research and development activities – R&D, including software development, unless they fall within the scope of information technology services that are of low added value;
manufacturing and production services;
purchasing activities related to raw materials or other materials that are used in the manufacturing or production process;
sales, marketing, and distribution activities;
financial transactions;
extraction, exploitation or processing of natural resources;
insurance and reinsurance activities;
senior corporate management services, except for those that consist of the management of services that qualify as low value-added services; and
international transport, leasing or charter services.

It is important to highlight that payments for low value-added services will only be considered deductible from the IRPJ and CSLL calculation basis when the activity carried out by the other party provides a reasonable expectation of economic or commercial value for the taxpayer, in order to improve or maintain its commercial position, in such a way that unrelated parties, in comparable circumstances, they would be willing to pay for the activity or to carry it out on their own.

11.5.14. Cost-sharing Agreements

Cost-sharing agreements contain a lot of tax contradictions in Brazil, due to the low legislative exploration of the topic. However, Law n. 14,596/23 brought some provisions that may give a more accurate guidance to taxpayers.

Based on the innovations brought by the Provisional Measure, it is understood that the contributions of the participants in the cost sharing agreement will be based on the “arm’s length” principle and proportional to their proportions in the total expected benefit, which will be evaluated by means of estimates of the increase in revenues, reduction in costs, or any other benefit that is expected to be obtained from the agreement. However, when there is disproportionality between contributions, compensation will be made among participants.

11.5.15. Business Restructuring

Law n. 14,596/23 defines business restructurings as modifications in the commercial or financial relations between related parties that result in the transfer of potential profit or in benefits or losses for any of the parties and that would be remunerated if they were made between unrelated parties.

In these cases, the compensation will be established based on the benefit or loss measured by the related parties.

11.5.16. Financial Operations

In financial transactions, it will be necessary to consolidate if the transaction will be treated as a debt or equity transaction. This distinction will be made based on the economically relevant characteristics of the transaction, the perspectives of the parties and the realistically available options.

In transactions understood as capital operations, interest and expenses will not be deductible from the real profit and from the CSLL calculation basis.

In transactions understood as debt operations, the remuneration of the creditor party will be defined based on the existence or inexistence of financial capacity, or on the possibility or impossibility of controlling economically significant risks.

In thin capitalization scenarios, the dynamics continues based on fixed coefficients for determining the volume of indebtedness.

11.5.17. Intra-group Guarantees

In the hypotheses of guarantee, it will be necessary to define if the performance will be delineated as: (i) service, in which case remuneration will be payable to the guarantor; (ii) partner activity or capital contribution, in which case no remuneration will be payable.

If remuneration is owed, the basis will be determined according to the benefit obtained by the debtor that outweighs the incidental benefit arising from the implicit group support, and may not exceed fifty percent of the amount, except when it is reliably demonstrated that another approach would be more appropriate.

11.5.18. APAs

The IRS will be able to conduct request for rulings about the methods that should be adopted by the taxpayer. However, if the information provided by the taxpayer shows flaws, the inquiry will lose its effect.

The inquiries will be valid for up to four years, and a fee of R$80,000.00 will be charged to institute the request.

A request can be made for an extension of the request for ruling validity for two more years, which may or may not be accepted by the authorities. The prolongation request will cost R$20,000.00.

11.5.19. Penalties

The penalties applicable to non-compliance with the new regime can consider: (i) the value of the transaction, (ii) the value of the gross revenue or (iii) the value of the consolidated revenue of the multinational group. In any case, the minimum fine will be R$20,000.00 and the maximum R$5,000,000.00.

One of the main innovations brought by the Provisional Measure is the exemption from some penalties related to inaccurate, omitted, or incomplete information, as well as the possibility that formal errors or immaterial information duly proven have the penalty dismissed.

11.5.20. Mutual Agreement Procedure

In cases of results agreed in a dispute resolution mechanism provided in the scope of an international agreement or convention to eliminate double taxation of which Brazil is a signatory, the tax authority must review, ex officio, the assessment made in order to implement the agreed result in accordance with the provisions and purpose of the international agreement or convention.

11.5.21. Deductibility Restrictions

In accordance with the new transfer pricing rules, the maximum limit of 5% for the deduction of amounts paid, credited, delivered, used or remitted as royalties, technical, scientific, administrative or similar assistance was revoked. On the other hand, such amounts will not be deductible when framed in any of the following hypotheses:

the same amount is treated as a deductible expense for another related party;
the amount deducted in Brazil is not treated as taxable income of the beneficiary according to the legislation of its jurisdiction; orthe amounts are intended to finance, directly or indirectly, deductible expenses of related parties that entail the hypotheses referred to above.

11.5.22. Documentation

According to the new transfer pricing legislation, the taxpayer will need to prepare and file the following documentation:

I – Global File (equivalent to the OECD Master File), containing information on the structure and activities of the multinational group to which the Brazilian entity belongs and the other entities that are part of the multinational group, in addition to supporting documentation; and

II – Local File, containing information on the controlled transactions and the respective related parties involved, in addition to supporting documentation.

The submission of both of the above documents will be waived if the total amount of the taxpayer’s controlled transactions executed in the previous calendar year, before transfer pricing adjustments, is less than R$ 15 million.

In addition, there is some specific information that must be disclosed by the taxpayer, as provided for in article 58 et seq. of IN 2,161.

11.6. Thin Capitalization Rules

Federal government enacted on December 15, 2009 Provisional Measure No. 472 which, among other changes, establishes limitations regarding the deductibility of accrued interest in case of loans executed with foreign related parties and/or with lenders domiciled in low-tax jurisdictions or subject to privileged tax regimes.

This Provisional Measure was converted into Law No. 12,249, dated June 11, 2010. The new rules of thin capitalization are divided in two kinds: (i) rules applicable to transactions with related parties, except for transactions with parties subject to a privileged tax regime or domiciled in low tax jurisdictions; and (ii) rules applicable to transactions under a privileged tax regime or carried out with parties domiciled in low-tax jurisdictions.

Rules applicable to transactions with related parties, except for transactions with parties subject to privileged tax regimes or domiciled in low-tax jurisdictions.

Debt equity ratio: 2:1

Notwithstanding the rules limiting the deductibility of interest expenses foreseen in the Brazilian transfer pricing legislation, the interest paid or credited by a Brazilian source to a related legal entity or individual, resident or domiciled abroad, will be deductible within the fiscal year for purposes of calculating the corporate income taxes if they cumulatively meet the following requirements:

In case of the debt funding extended by a related entity abroad with corporate interest in the Brazilian company, the sum of the debt funding, verified on the date of the accrual of the interest, shall not exceed two times the amount of equity participation of the related foreign party in the net equity of the Brazilian company;
In case of the debt funding extended by a related entity abroad with no corporate interest in Brazilian company, the sum of the debt funding, verified on the date of the accrual of the interest, shall not exceed two times the amount of the net equity of the Brazilian company.

For purposes of the calculation of the total debt funding, every form and term of financing shall be considered by the Brazilian company, regardless of the registry of the contract with the Brazilian Central Bank.

This rule also applies to debt funding transactions raised by Brazilian entities whereby the guarantor, legal representative or any intervening party is a related party abroad.

In case any excess is verified in what concerns the limits set in items I and II above, the exceeding interest will be considered an unnecessary and non-deductible expense in the calculation of the corporate income taxes.

Additionally, the new requirements for the tax deduction of the interest expenses do not exclude the existing deductibility requirement prior to the new rules, according to which the expenses and costs will only be tax deductible if they are necessary, usual and normal to the taxpayer’s activities.

Rules applicable to transactions under a privileged tax regime or carried out with parties domiciled in low-tax jurisdictions

Debt equity ratio: 0.3:1

Similar to the rules mentioned above, whenever the interest is credited or paid by a Brazilian source to any individual or legal entity resident, domiciled or organized in a low-tax jurisdiction or subject to a privileged tax regime according to Articles 24 and 24-A of Law 9,430/96, the amount of the debt funding meeting such specifications will have to observe a limit of 30% of the net equity of the Brazilian party, regardless of any effective equity participation held by the foreign party in the Brazilian entity.

In case any excess is verified in what concerns the limits of this case, the exceeding interest will be considered an unnecessary and non-deductible expense in the calculation of the corporate income taxes.

11.7. Interest on Equity

Law No. 9,249/95 determines that a Brazilian company subject to the actual profit regime may pay or credit interest on equity to its partners/shareholders and consider the corresponding expenses as deductible from the taxable basis of the IRPJ and CSLL, provided that the legal requirements are met.

The IOE to be paid or credited and deducted as an operational expense cannot exceed the following limits: 1) the amounts resulting from the application of the TJLP, pro rata die, over the company’s net equity accounts indicated in the legislation and 2) 50% of the net profits or 50% of the retained earnings, whichever is higher.

The IOE paid or credit is subject to the Withholding Income Tax (“WHT”) at a rate of 15% (or 25% if the beneficiary is located in a low tax jurisdiction).

Law No 14.789/2023 and Normative Instruction No. 2,201/2024, introduced changes to the calculation of JCP, especially with regard to the tax incentive reserve account, composed of the allocation of the portion of net income resulting from government donations or subsidies to investments whose calculation is currently prohibited in the JCP tax base, including the portions that have been allocated to the capital stock and the capital reserve.

Furthermore, the federal government presented a proposal to reform income taxation in Brazil (PL 2,337/21), which intends to extinguish JCP, as well as establishing dividend taxation.

11.8. WHT in foreign payments – (services, royalties, interests)

The incomes, gains derived from capital and other revenues paid, credited, delivered, applied or sent, through resource placed in Brazil, to the individual or to the legal entity domiciled abroad are subject to levy at withholding income tax (“IRRF”).

The quoted tax levies on the rates of:

(i) 15% on transactions not taxed according to the specific manner provided for in Law as well as on (a) the gains derived from capital concerning investments performed via foreign currency; ; (b) alimony and reserve funds; and (c) the awards obtained through competitive examination or competitions. Please refer to item 11.2.3 – Non-residents for the taxation applicable over the gains derived from capital assessed upon assignment of goods and rights.

(ii) 25%: (a) on the revenues proceeding from any transaction under which the beneficiary is resident or domiciled in country where the taxation system is subsidized and; (b) on the labor revenues, with or without employment relationship, or on the revenues regarding rendering of services.

It shall be noted that the specific services taxed by CIDE [Contribution for Intervening on Economic Domain], whose applicable rate is of 10%, are entitled to a reduction of the IRRF to 15%, unless the beneficiary of the remittances is located in a low-tax jurisdiction. In this case, IRRF will be levied at a 25% rate plus the CIDE at a 10% rate.

Specific rules apply to investments in the Brazilian financial and capital markets.

11.9. Social Contributions on Revenues (“PIS” and “COFINS”)

The Contribution for the Financing of Social Security (“COFINS”) and the Social Integration Program (“PIS”) shall be levied over the revenues received by the Brazilian legal entities, with the exception of few cases.

Laws Nos. 10,637/02 and 10,833/03 introduced the system for verification of PIS/COFINS [Social Integration Program/Contribution for Social Security], which applies to the major of the companies. The intent of the new legislation is to prevent the accumulation of this contribution by way of grant of tax credits. Nowadays, with few exceptions, PIS/COFINS levy on a combined rate of 9.25% (COFINS – 7.6% and PIS – 1.65%).

Under the non-cumulative system of calculation of PIS and COFINS, the taxpayer is entitled to the record the tax credit related to the contribution pursuing from the transactions of:

1. goods acquired for purposes of resale, excepting for those goods expressly referred to;
2. goods and services used as input for the rendering of services and for the production or manufacturing of goods or products addressed to sale, including fuels and lubricants;
3. electrical and heat powers, including steam Power, consumed in the legal entity’s establishments;
4. payment of leases of buildings, machines and equipment to companies for the use thereof in the company’s transactions;
5. amount of the considerations of commercial lease transactions of legal entity;
6. machines, equipment and other goods incorporated to the fixed assets acquired or manufactured to be leased to third parties or used in the manufacturing of goods intended for sale or in the rendering of services;
7. buildings and betterments in own real property or real property pertaining to third parties used in the corporate activities;
8. goods received in return;
9. storage of good and freight in the sale transaction, for cases (i) and (ii), when the burden is supported by the seller;
10. meal coupons, transportation and uniforms provided to employees by a company which explores activities of cleaning, conservation and maintenance services; and
11. goods incorporated to the intangible assets, acquired for the utilization in the production of goods destined to sale or in the rendering of services.

The credits may be used to reduce the PIS/COFINS that levy on the revenues of the company. This form does not apply to the cooperative organizations, immune or exempt companies, companies taxed by income tax based on the assumed or arbitrated profit, legal entities that have adopted the SIMPLES [Unified Tax Collection System], to the revenues arising out of rendering of telecommunication services, arising out of services of call center, telemarketing, phone collecting and phone services companies in general, to revenues arising out of software related services, among others.

The financial revenues, which were subject to a zero rate of PIS/COFINS as long as the taxpayer was under the non-cumulative system, begin to be subject to the 4.65% combined rate as from July 1st, 2015, as per Decree No. 8,426/15.

As per the Constitutional Amendment no. 132/2023 (further addressed below), PIS/COFINS will be due up to December 31, 2026 and will be replaced by CBS. Starting from January 1st, 2027, PIS/COFINS will no longer be due upon revenues received by the Brazilian legal entities.

PIS/COFINS-Import

Law No. 10,865/04 introduced the taxation of PIS and COFINS on imported products and services. This law determines that PIS and COFINS are due in the entry of foreign goods in Brazil and in the payment, crediting, delivery, the use or remittance of amounts to foreign residents or domiciled abroad as payment for the services supplied.

The taxpayers thereof are all the importers and companies or individuals that contract the services of individuals or companies domiciled abroad. The general tax rates of the PIS and COFINS – Import contributions for imports of goods is 11.75% and the tax basis shall be the customs value of the imported goods. In the import of services, the applicable tax rate is 9.25% and the tax basis is the value paid, credited, delivered, employed or remitted abroad, before the deduction of the withholding income tax, plus the Municipal Services Tax (ISS) and the PIS and COFINS contributions.

As per the Constitutional Amendment no. 132/2023 (further addressed below), PIS/COFINS-Import will be due up to December 31, 2026 and will be replaced by CBS. Starting from January 1st, 2027, PIS/COFINS-Import will no longer be due upon import transactions.

11.10. Contribution for Intervention in Economic Domain (“CIDE”)

The Brazilian companies that hold licenses to exploit rights, purchasers of know how or parties to contracts that imply in the transfer of technology executed with non-residents and domiciled abroad are subject to CIDE taxation.

As of January 1, 2002 the CIDE contribution is also paid by companies that supply technical services, administrative assistance and other similar services, as well as by the legal entities that pay, credit, deliver, use or remit royalties, of any type, to beneficiaries resident or domiciled abroad.

The CIDE contribution is due over the amounts paid, credited, delivered, used or remitted, on a monthly basis, to non-resident beneficiaries, such as remuneration of the transactions above mentioned.

The payments for use license and rights for commercialization of software, in cases which do not involve technology transfer are not subject to CIDE.

The CIDE tax rate is of 10% and the taxpayer is the Brazilian legal entity. CIDE shall be collected on the last business day of the fortnight subsequent to the month in which the taxable event takes place.

11.11. Contribution for intervention in the economic domain (“CIDE”) over combustion fuels

This contribution is due over the import and sale of certain types of combustion fuels (petrol, diesel oil, aircraft kerosene and other types of kerosene, gasoline, liquefied petrol gas, including the by-products of natural gas, methanol and naphtha) in a fixed amount in Reais [Brazilian currency] pursuant to the measure unit adopted for each of the products susceptible to contribution.

The CIDE contribution is payable by the producer, mixer or importer of combustion fuels. In the domestic market, the taxpayer may deduct the amount of CIDE, paid in the export or commercialization, from the amounts of contribution for PIS/COFINS due in the commercialization, in the domestic market, while both contributions are charged. The CIDE contribution is not due over the revenue that results from the exports of the aforesaid products.

11.12. Contribution for the Development of the Brazilian Cinematographic Industry (“CONDECINE”)

This contribution is due over the exhibition, production, licensing and distribution of movies and photography work in video with profit purposes, per market segment, and it is calculated based on the period of work on predetermined basis.

The contribution is also levied on the provision of services that might distribute, effectively or potentially, conditioned audiovisual contents and on the placement or distribution of advertising audiovisual material that is included in international programming and in which there is direct participation of a national advertising agency.

CONDECINE is also due at the tax rate of 11% on the amounts paid, credited, remitted, delivered or used by local agents to foreign producers resulting from the exploitation of audiovisual work in Brazil.

11.13. Export Tax (“IE”)

The export tax is due upon export transactions. The IE ad valorem tax rate is applied according to a limited product list and varies according to the type of product that is being exported.

11.14. Import Tax (“II”)

The import tax is due upon the clearance by customs of the imported products, according to an ad valorem tax rate. The tax rate varies according to the tariff classification of the imported product. Currently, imports of products are also subject to IPI (Federal Excise Tax), ICMS (Sales Tax) (further addressed below) and PIS/COFINS-Import. These taxes, jointly with the import tax, are calculated as follows: the import tax is applied over the CIF price of the imported product; the IPI tax applies over the CIF price plus import tax; the ICMS tax applies over the CIF price, plus import tax, IPI tax, the PIS/COFINS-Import and the ICMS tax and the PIS/COFINS-Import applies over the CIF price.

11.15. Tax on the Circulation of Products and Services (“ICMS”)

The ICMS tax is a State tax that is due over the importation and circulation of goods and, also, the supply of interstate and intermunicipal transport and communication services.

The ICMS tax rates and tax benefits vary from State to State and depend on the type of transaction (e.g., intrastate or interstate sale of goods, communication or transportation services, etc.). In the State of São Paulo the most common tax rates currently are (i) 12% over transportation services; (ii) 18% over importation and circulation, within the State, of goods; and (iii) 25% over communication services.

The ICMS is due over imports by companies and individuals, even when not considered taxpayers for the purposes of ICMS payment, at a tax rate of 18%. The other tax rates may be applied depending on the product/service. The tax rates may also vary in interstate transactions (usually 7% or 12% depending on the state of destination of products and services, or 4% in case of imported goods or goods with imported content higher than 40%).

The ICMS system allows the taxpayer to offset the ICMS paid upon the purchase of products and services with the tax amount due in subsequent taxable transactions (e.g., sale of goods and services subject to ICMS tax). The difference amount such amounts shall consist of the amount due to the State.

As of 1 November 1996, importers/purchasers may be credited by the ICMS paid over imports and local purchases of fixed assets (which was prohibited up to 1 November 1996). Nevertheless, Supplementary Law No. 102/00 introduced a new system for the use of ICMS credits upon the purchase of fixed assets, according to which the taxpayer may record the aforesaid credits at a 1/48 monthly rate.

In regard to taxpayers that have excess of ICMS tax credit, some state laws establish alternatives that allow the taxpayer to transfer its credits. In the State of São Paulo, for example, the state law offers three options for the taxpayer that has an excess of ICMS tax credit to use the tax already paid (instead of offsetting same with ICMS debt), namely: (i) transfer of ICMS credits to any of its affiliates or offices established in the state of São Paulo, (ii) transfer the credits to an inter-dependent company, as defined by the law, or (iii) use the credits to pay suppliers of raw materials and/or certain fixed assets. Other state laws may establish other options for the use of ICMS credits.

Starting from January 1st, 2029, ICMS will be reduced gradually until December 31, 2032, in the following proportions:

10% in 2029;
20% in 2030;
30% in 2031; and
40% in 2032.

Starting from January 1st, 2033, ICMS will no longer be due and will be replaced by IBS.

11.16. Federal Excise Tax (“IPI”)

The IPI is a federal tax that is due over manufactured products upon the outflow from the establishment where they were manufactured. The IPI tax is also due over the import of manufactured products in the case of import of a product used as an input and its subsequent sale by the importer. The IPI tax rates vary according to the product’s essentiality.

The IPI is due in each stage of the manufacturing process of the industrialized products, and also in the import thereof. This tax is paid upon the purchase or import of raw materials and products, parts, intermediary components and packaging materials and may be offset in subsequent transactions.

Starting from January 1st, 2027, IPI rate will be reduced to 0% for the most goods, except for goods manufactured in the Manaus Free Trade Zone. The list of goods is still pending regulation.

11.17. Municipal Services Tax (“ISS”)

ISS is a municipal tax levied on the supply of any type of services, as defined in federal Supplementary Law (LC). This tax is currently governed by Supplementary Law (LC) No. 116/03. The rate of ISS varies between 2% and 5%.

ISS is due generally for the Municipality where the establishment rendering services is located. The following exceptions are determined in LC No. 116/03: civil construction, services acquired abroad, sweeping and collection of garbage services, treatment of effluents, environmental sewage, forestation, parking security, storage and amusement services.

As of January 2004 the ISS tax is due over the purchase of foreign services, the Brazilian beneficiary thereof being liable for the payment of the tax, in addition to its levy over exports of services when the results occur in Brazil (despite that the payment is made by a foreign resident).

Starting from January 1st, 2029, ISS will be reduced gradually until December 31, 2032, in the following proportions:

10% in 2029;
20% in 2030;
30% in 2031; and
40% in 2032.

Starting from January 1st, 2033, ISS will no longer be due and will be replaced by IBS.

11.18. Tax on Financial Transactions (“IOF”)

Decree No. 6,306/07 regulates the IOF and since its enactment suffered successive amendments in order to institute new tax rates.

With respect to IOF-credit, which applies to in case of credit transactions of any nature, the tax is due at the delivery moment of the value which shall constitute the obligation object, or at the moment it is made available for the interested party. Concerning the credit transactions with term and values determined, the IOF applies over the main loan at a tax of 0.0041% per day, in case of legal entity borrower, or of 0.0082% in case of an individual borrower, followed by a supplement of 0.38 %, totalizing maximum amount of, respectively, 1.87% and 3.37%.

For payments with undetermined terms, it also applies the tax rate of, respectively, 0.0041% and 0.0082% per day, for the legal entity borrower and individual borrower, followed by a supplement of 0.38 %, but there is a specific methodology of calculation to benefit the amount of the due tax.

The tax on the financial transactions is levied also on determined exchange transactions (“IOF-exchange”). Recently, for the majority of transactions in which the IOF-exchange is due, a tax rate of 0.38% applies.

. For income arising from export to due IOF-exchange rate is of 0%. Currently, a 0% rate applies to the inflow of funds to be invested in the Brazilian financial and capital market by non-residents.

In other cases, there will be a gradual reduction in the IOF-Exchange rate over the next few years (as per the changes promoted by Decree 10,997/2022 and 11,153/2022). For example, in foreign exchange transactions aimed at fulfilling the obligations of institutions participating in cross-border payment arrangements (in their capacity as issuers), currently taxed at 4.38%, the rate will be reduced by 1% per year until, as of January, 2 2028, these transactions will be subject to IOF-Exchange at 0%.

Furthermore, it is expected that the IOF-Exchange rate will be reduced to zero for all transactions from January, 2 2029.

In addition to the levy of IOF over credit and exchange transactions, this tax also is due over financial transactions related to insurances (mostly the tax is levied at a 7.38% rate), title deeds and real estate (with taxes that in the majority of transactions oscillate between 0% and 1.5%) and upon transactions with gold, financial assets, or exchange instrument, under the rate of 1%.

Starting from January 1st, 2033, however, IOF will no longer be due upon financial transactions related to insurances. On the other hand, IBS and CBS (further addressed below) will be due upon financial transactions related to insurances.

11.19. Tax on Urban Buildings and Property (“IPTU”)

IPTU is a Municipal tax that is levied on an annual basis, which tax rates are normally progressive, based on the use and appraised value of the real estate property.

11.20. Tax on the Transmission of Real Estate Property (“ITBI”)

ITBI is a Municipal tax levied over the transfer of real estate property. The tax rates may vary according to the real value of the transaction or the appraised value of the real estate, whichever is higher. Note that, in the Municipality of São Paulo, the tax authorities are allowed to update the appraised value of the real estate through market researches. In addition, in the Municipality of São Paulo, ITBI has a fixed tax rate of 3%. The ITBI tax is not due in the transfer of real estate property in the events of merger of companies or contributions for the paying up of the capital stock in cases where the taxpayer’s corporate objective is not related to the real state activity.

11.21. Tax on Transmission of Property Causa Mortis and Donations (“ITCMD”)

The ITCMD is a state tax levied on the transmission of chattels or real estate property by way of donation or death (inheritance), and will be due based on progressive rates, in accordance with the Constitutional Amendment no. 132/2023, approved in December, 2023. Currently, in the State of São Paulo, the ITCMD tax rate is 4% of the appraised value of the chattels or real estate or the transmission of rights. However, in case that the State Bill No. 7/2024 is approved, the ITCMD rate in the State of São Paulo will become progressive, varying from 2% to 8%, depending on the value of the inheritance or donation.

11.22. Tax Reform of indirect taxes in Brazil

On December 20, 2023, Constitutional Amendment No. 132 was published, which promoted significant changes in the Brazilian tax system, especially regarding consumption taxation, aiming at greater efficiency and tax simplification. These changes are still pending regulation, and both Complementary Bill 68/2024 and 108/2024 are currently under analysis by the National Congress.

In summary, Constitutional Amendment No. 132/2023 established the creation of two new taxes to replace the current taxes levied on the manufacturing and consumption of goods and services, adopting the Value Added Tax model – Dual VAT. In addition, it was also created a selective tax levied upon transactions with goods that are harmful to health or to the environment.

11.22.1. Contribution on goods and services (“CBS”):

CBS is a contribution under the Federal Government jurisdiction levied upon transactions involving tangible and intangible goods, including rights, and services, also encompassing import transactions. Among the services that CBS is levy, we highlight financial services, which include, for example, credit, exchange and insurance transactions.

The Senate will define the CBS reference rate, which may be adopted if no other rate has been established by the federal government, and, as a rule, the rate established will be the same rate applicable to all transactions.

CBS will be due based on the destination principle, and may be offset against CBS amounts charged on the previous transaction, in observance to the non-cumulative principle. CBS will not be levied on export transactions, and the exporter is guaranteed the maintenance and use of the CBS credits.

On January 1st, 2026, CBS will be due at a rate of 0.9%. From 2027 to 2028, CBS will be due based on the rates set by the Senate, reduced by 0.1%. Starting from January 1st, 2029, CBS will be charged based on a full rate set by the Senate.

CBS will replace the PIS/COFINS and IOF upon financial transactions related to insurances currently due.

11.22.2. Tax on goods and services (“IBS”):

IBS is a tax under State and Municipal jurisdiction levied upon transactions involving tangible and intangible goods, including rights, and services, also encompassing import transactions. Among the services that IBS is levy, we highlight financial services, which include, for example, credit, exchange and insurance transactions.

The Senate will define the IBS reference rate, which may be adopted if no other rate has been established by the federative entities, and, as a rule, the rate established will be the same rate applicable to all transactions.

IBS will be due based on the destination principle and may be offset against IBS amounts charged on the previous transaction. IBS will not be levied on exports, and the exporter will be guaranteed the maintenance and use of the IBS credits.

On January 1st, 2026, IBS will be due at a rate of 0.1%. From 2027 to 2028, IBS will be due based on a rate of 0.05% for the respective State and Municipality. From 2029 to 2032, IBS will be due based on the rates set by the Senate, with a gradual increase. Starting from January 1st, 2033, IBS will be charged based on a full rate set by the Senate.

IBS will replace the ICMS and ISS currently due.

11.22.3. Selective Tax (“IS”)

IS is a tax under the Federal Government jurisdiction levied upon transactions involving goods that are harmful to health or the environment, also encompassing import transactions.

IS will be levied only once and will not give the right to accrue tax credits, and its rate will be set by ordinary law, and may be specific, per unit of measurement adopted or ad valorem.

IS will be due as from January 1st, 2027.

(1) Article 258 of the Income Tax Regulations: Taxable Income is the net profit of the period of assessment adjusted by the additions, exclusions or compensations prescribed or authorized by RIR [Income Tax Regulations].

(2) The Brazilian Federal Revenue Department (“RFB”) has listed, for purposes of Brazilian taxation system, the jurisdictions considered as low-tax jurisdictions – the so-called “tax havens” – (Normative Instruction of SRF No. 1,037/10). Such countries include American Samoa, American Virgin Islands, Andorra, Anguilla, Antigua and Barbuda, Aruba, Ascension Island, Bahamas, Bahrain, Barbados, Belize, Bermuda Islands, British Virgin Islands, Brunei, Campione D’Italia, Cayman Islands, Cook Islands, Channel Islands (Alderney, Guernsey, Jersey, and Sark), Dominica, Curacao, Cyprus, Djibouti, Federation of Saint Christopher and Neveis, French Polynesia, , Gibraltar, Grenada, Hong Kong, Ireland, Isle of Man, Kiribati, Labuan, Lebanon, Liberia, Liechtenstein, Macao, Maldives, Malta, Mauritius Islands, Marshall Islands, Monaco, Monserrat Islands, Nauru, , Niue Islands, Norfolk Island, Occidental Samoa, Oman, Panama, Pitcairns Islands, Qeshm Islands, Santa Lucia, Saint Helena Islands, Saint Martin, Saint Pierre et Miquelon Islands, Saint Vincent & Grenadines, , Seychelles, Solomon Islands, Swaziland, Tonga, Tristan da Cunha, Turks & Caicos Islands, United Arab Emirates and Vanuatu.

In addition, the article 2 of the Normative Ruling No. 1,037/10 lists the “privileged fiscal regimes” such as certain regimes in Uruguay, Singapore, The Netherlands, Austria, among others.

(3) Normative Instruction No. 1,312/12 defines “similar property” as that containing, concomitantly: (i) the same nature and the same function as well; (ii) as the property susceptible to mutual compensation so as to hold the function whereto it has been planned; and (iii) equivalent specifications.

1- The Ministry of Finance reduced the percentage to 17% for the countries, dependencies and regimes that are aligned with the international standards of fiscal transparency, in the terms to be defined by the Brazilian Federal Revenue Department, notwithstanding the observance of the other conditions provided by Articles 24 and 24-A of Law 9,430/96.

Authors: Clarissa G. Machado, Marcelle Silbiger and Luiz Felipe Camargo

Trench, Rossi e Watanabe Advogados

Av. Arq. Olavo Redig de Campos, 105 X Av. Enxovia, S/N
30° andar
Edifício EZ Towers, Torre A – 04711-904
São Paulo – SP
Tel.: (11) 3048-6800
Email: [email protected]
Internet: www.trenchrossi.com.br

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Doing Business in Brazil

11.1. a 11.21. Taxation in general (taxes, fees and contributions)