Doing Business in Brazil

11.23. Taxation of electric power supply


Electrical energy is one of the main inputs for the Brazilian industry, and the safety of its supply and its cost are determining and essential factors for the competitiveness of Brazilian products.

According to estimates, factories account for approximately 35% of the country’s electrical energy consumption.


In Brazil, the electrical industry is divided into: generation, transmission, distribution, and trading*.

  • Generation: is the segment of the electricity industry responsible for producing electrical energy and feeding it into the transportation systems (transmission and distribution) for it to reach consumers.
  • Transmission: is the segment that transports large amounts of energy from the generating plants. Transmission is responsible for delivering energy to the distributors. 


  • Distribution: receives the energy from the transmission system and distributes it at retail to consumers. 
  • Trading: Trading companies purchase energy by means of bilateral contracts in the free environment, and they may resell this energy to free or special consumers or to other traders. They may also resell to distributors, in this case only in auctions conducted in the regulated environment.


Legend (clockwise):





Source: ANEEL (Por Dentro da Conta de Luz)

The Industry is also composed of the National Interconnected System (SIN), which is a large chain, extending over a large part of the Brazilian territory, congregating generation systems and an electrical transmission network, which is divided into 4 subsystems: Northeast, Southeast/Central West, South, and North.


Legend (clockwise):



Southeast/Central West

The Amazon Region 


Source: ANEEL

Finally, the organization chart below presents the institutions and organization of the Brazilian electrical industry, which are responsible for the governance and organization of such industry:


Column 1

CMSE – Electrical Industry Monitoring Committee

ANEEL – Brazilian Electrical Energy Agency


Generation Agents

Transmission Agents

Distribution Agents

Trading Agents

Column 2

Ministry of Mines and Energy

EPE – Empresa de Pesquisa Energética [Energy Research Company]

ONS – National System Operator

CCEE – Electric Energy Trading Chamber

Source: ANEEL (2019)

I.I.1 Contracting Environments – Energy Markets 

The Electrical Industry is divided into two energy contracting environments, to wit: (i) captive market and (ii) free market. 

  1. Captive Market or Regulated Contracting Environment – ACR: in the captive market, consumers may only purchase energy from local distributions that hold a concession to sell energy in that region. The captive market is estimated to account for 64.6% of the total consumption of energy in Brazil.
  2. Free Market or Free Contracting Environment – ACL: in the free market, consumers purchase energy directly from the generators or traders, through bilateral contracts with freely negotiated conditions, such as price, term, and volume. The free market is estimated to account for 35.4% of the total consumption of energy in Brazil and for 85.5% of industrial consumption.

I.I.3. Functioning of the Energy Market – Summary Scenario

The energy market is complex and there are a number of agents that act in the various phases of the electricity circulation chain, from generation to consumption, as shown above.

The most common agents are generators, transmitters, distributors, traders, and consumers. There are two energy contracting environments, the regulated and the free market. 

Generators may operate in both environments, and they are responsible for producing electrical energy. 

The transmitters transport electrical energy in high voltage to the consumer centers, but do not sell energy. Thus, they do not operate in either market.

Distributors operate only in the regulated/captive market, they lower the voltage and supply electrical energy to consumers. They sell and physically deliver energy to captive consumers and only physically deliver the energy to free consumers. 

Traders operate in the free contracting environment (free market) and may engage in a variety of activities: customer representation, management, intermediation, and purchase and sale of energy.

Consumers are the purchasers of electrical energy, and they may be divided into captive and free consumers. Captive consumers only purchase energy from the distributors, through the electrical grid to which they are connected. Free consumers may purchase energy from the generators or traders, to which they pay for the price of energy, but continue to pay the distributors for use of the electrical grid. 

I.I.4. Composition of the electrical energy tariff 

The electrical energy tariff shall guarantee the supply of energy with quality and ensure the service providers sufficient revenue to cover efficient operational costs and remunerate investments required to expand capacity and guarantee the supply to individuals and legal entities.

The electrical energy tariff is composed of the amounts of investment and technical operations carried out during the generation, transmission, distribution, and trading processes, in addition to the sectorial charges and taxes (ICMS, PIS/COFINS, and Public Lighting Contribution), as explained in further detail below.

A. Costs relating to Electrical Energy Supply

With respect to the costs involved in the supply of energy, which are assessed for composition of the tariffs, we note 3 different costs, which relate to:

  1. purchase of electrical energy (Purchased Energy) – the value of the generation of energy purchased by the distributors for resale to their consumers is determined in public auctions, which ensures transparency  of cots, competitiveness, and best prices;
  2. use of the distribution system and use of the transmission system (Transport of  energy to the consumer units (transmission and distribution) – The costs involved in the transmission of electrical energy are those related to the transport of energy from the generating units to the distribution systems, and they are composed of the following items:
    1.          use of the transmission facilities classified as Basic Grid, Border Basic Grid, or Other Transmission                     Facilities (DIT) of shared use,
    2.          use of the distribution facilities, 
    3.          connection to DIT of exclusive use,
    4.          connection to the distribution grids
    5.          transport of the energy originating from Itaipu to the point of connection to the Basic Grid, (vi) use of                 the  Basic Grid by the Itaipu plant, and 
    6.          use of the transmission system by the power plants connected at a voltage level of 88 kV or 138 kV.

The costs involved in the distribution activity (entirely managed by the distributors), in turn, are costs related to the investments they made, in addition to the share of depreciation of their assets and the regulatory remuneration 

c. Sectorial Charges – even though they are established by law to enable the implementations of public policies in the Brazilian electrical industry, their amounts are set forth in resolutions or orders of the Brazilian Electrical Energy Agency (ANEEL) and are paid by the distributors by means of the electricity bill. There are approximately 18 sectorial charges and fees that are therefore included in the electrical energy tariff. From among these 18 charges, we note the Incentive Program for Alternative Sources (PROINFA) and the Energy Development Account (CDE), it being understood that the letter is the most representative in terms of relevance and amounts. 

The CDE, in turn, is subdivided into 8 sub-items, the most important of which are the following: Fuel Consumption Account (CCC), which is a payment made to the isolated systems in consideration of the use of high-cost fossil fuels for power generation; Incentivized Sources – Distribution Tariff Discounts (Incentivized Sources), Low Income – Social and Electrical Energy Tariff (TSEE), which represents discounts from 10% to 100% in the energy tariffs of low-income residential consumers.

It is estimated that more than thirty percent (30%) of the electricity bill is due to the cost of energy. 

B. Tariff Flags

The main function of the 5 Tariff Flags (green, yellow, red – levels 1 and 2 and water scarcity level) is to balance the costs of distributors with the acquisition of energy of higher value, especially from thermal plants, which occurs more frequently in times of water crisis. The flags signal to the consumer, month by month, the real cost of electricity generation that will be charged to consumers, providing them an opportunity to adjust their consumption, if desired.


C. Taxes

In addition to the tariff, the Federal, State, and Municipal Governments charge on the electricity bill PIS/COFINS, ICMS, and the Public Lighting Contribution, respectively.

Federal Taxes: The Social Integration Program (PIS) and the Social-Security Financing Contribution (COFINS) are taxes levied by the Federal Government, which are intended for the worker and for the Federal Government’s social programs.

 State Tax: The Tax on the Circulation of Goods and Services (ICMS) is a state tax. As provided in article 155 of the 1988 Brazilian Federal Constitution, the tax is levied on transactions relating to the circulation of goods and services, and each State and the Federal District are empowered to define its rates. Distributors are required to charge the ICMS directly in the electricity bill and transfer the amount to the State Government. It is the tax with the greatest impact on the electricity bill. 


Municipal Tax: The Public Lighting Contribution (CIP) is provided in article 149-A of the Brazilian 1988 Federal Constitution, which establishes, among the powers of the municipalities, the power to provide on the form of collection and the tax base of the CIP, by means of a specific law approved by the City Council. Therefore, the Municipal Government is solely and exclusively responsible for services involving the planning, implantation, expansion, operation, and maintenance of public lighting facilities. In this case, the concessionaire only collects the public lighting contribution for the municipality. The respective amounts are transferred even if the consumer does not pay the electricity bill.

 The taxes above are the main taxes levied on electricity bills and vary according to the location, depending on the municipality and the state. 

In the Section below we will describe in further detail the taxes levied on the electricity bill of the taxpayers. We note, however, that those who wish to obtain the detailed values of each of the taxes and charges with rates and impact on the amount paid in the electricity bill may check them in the electricity bills or in the tables provided by the concessionaires on their websites, as determined by ANEEL.


II.I FEDERAL TAXES: Social Integration Program (“PIS”) and Social Security Financing Contribution (“COFINS”)

Power supply transactions are subject to the levy of PIS and COFINS at the combined rate of 9.25% (non-cumulative regime) on the transaction price.

Legal entities subject to the non-cumulative regime may deduct credits in relation to “electrical energy and thermal energy, including in the form of steam, consumed in the establishments of the legal entity”.

Please note that electrical energy expenses entitle the legal entities to a credit irrespective of the sector or establishment of the company where the electricity is being consumed, encompassing all premises used, irrespective of their purpose (operational area, accounting, management, etc.). We further note that in these transactions, the credit shall only be granted if the energy is paid to Legal Entities domiciled in Brazil.

There are discussions, both on the administrative level and in court, with respect to the possibility of assessing credits also on contracted energy, especially if the business establishment’s contracted demand is higher than the electricity consumed. The current understanding of the Brazilian Federal Revenue Office is to deny the credit in these cases, considering that the guaranteed electrical energy power allegedly does not fall under the legal provision that defines “consumption”. However, there are relatively recent decisions of the Administrative Council of Tax Appeals  (CARF) admitting the granting of credit relating to “expenditure with contracted demand, included in the electricity bill”, since “it is mandatory, aims at the effective operation of the establishment, and has a social purpose…” (CARF Appellate Decision 3201-007.441 of November 17, 2020).

Law 14.385, which provides on the return of the ICMS included in the PIS and COFINS tax bases, was sanctioned in 2022. In 2017, the Federal Supreme Court decided that such inclusion was unconstitutional, and therefore such court ordered the exclusion of ICMS from these tax bases and defined that this measure should retroact to March 15, 2017.

Specifically with respect to this judicial discussion, according to the Brazilian public news agency Agência Brasil, the Federal Government should return BRL 60.3 billion in PIS/COFINS credits to the distributors. Of this total, by July 2022, BRL 12.7 billion have allegedly been returned by ANEEL in tariff revisions since 2020, which is said to have prevented electricity bills from increasing by an average of 5% since then. 

II.II. Tax on the Circulation of Goods and on the Provision of Interstate and Intermunicipal Transportation and Communication Services (“ICMS”)

This is the tax that most affects the price of the Electric Tariff (TE).


It is probably the tax that most adds to the electricity bill. This occurs because in the past, until 2021, the ICMS rates in some states exceeded 30%. Currently, the rates are fixed, on average, between 12 and 17%, due to a judgment rendered by the Federal Supreme Court. However, this scenario is beginning to change again, indicating an increase in the percentage, so that the debate about the percentage of the tax rate will be revisited here.

II.II.1.A. STF Judgment – Theme No. 745 – Unconstitutionality of Tax Rates in excess of that applicable to Transactions in General, i.e., in excess of 17% or 18% – 

In 2021, in the trial of the Appeal to the Federal Supreme Court (RE) 714.139/SC, with General Repercussion (Theme No. 745) (Appellant Lojas Americanas S.A. and Appellee State of Santa Catarina), the Federal Supreme Court (STF) declared the unconstitutionality of rules of the States of Pará, Tocantins, Minas Gerais, Rondônia, and Goiás that set the ICMS tax rate for transactions involving supply of energy and telecommunications services in excess of that levied on transactions in general due to the doctrine of selectivity. 

The judgment was rendered in five Direct Actions for the Declaration of Unconstitutionality (ADIs 7111, 7113, 7116, 7119, and 7122) filed by the Federal Attorney General Augusto Aras, and which were unanimously granted.


In view of that, due to the essential nature of both transactions, the tax burden attributed to them should be lower than or equal to that of internal transactions, which ranges from 17% to 18%, as defined by the state.

However, for this decision not to affect the public treasury, the STF modulated the effects for such decision to produce effects only as from fiscal year 2024, except for actions filed until commencement of the trial on the merits, on February 5, 2021.

Subsequently, rules of the States of Paraná (ADI 7110), Amapá (ADI 7126), Amazonas (ADI 7129), Roraima (ADI 7118), Sergipe (ADI 7120), Pernambuco (AID 7108), Piauí (ADI 7127), Acre (ADI 7131), São Paulo (ADI 7112), Bahia (7128), and Alagoas (7130), Mato Grosso do Sul, Rio Grande do Norte, and Espírito Santo were also tried in the same direction. 

II.II.1.B.  Enactment of Federal Complementary Law 194/22 and legal limitation of an 18% cap for transactions involving energy

In the meantime, in June 2022, Federal Complementary Law No. 194, which amends the National Tax Code, and the Kandir Law (Complementary Law 87/96), which considers essential goods and services those services relating to fuel, electrical energy, communications, and collective transportations were enacted, as well as Complementary Laws 192/22 and 159/17.

This law established an 18% cap for ICMS rates charged in electricity bills, considering that most of the States charged tax rates ranging from 25% to 30% on these bills. 

On July 21, 2022, the federal government published on the website of the Ministry of Mines and Energy an article providing examples of the impact of this measure (and also of the STF trials) on electricity bills. Please see: 

 “…in Rio de Janeiro, residential, industrial, and commercial consumer units the monthly consumption of which exceeds 300 kWh shall be entitled to a 13% reduction in the electricity bill. 

In Minas Gerais, residential consumer units may receive, in average, a 16% reduction in the electricity bill. In commercial consumer units, this reduction may reach 9%.

In the state of São Paulo, in turn, this measure may result in an average 9% reduction in the bills of residential consumer units. 

In the state of Bahia, residential and commercial consumers may receive an average 10% reduction in their bills.” (emphasis added)


II.II.1.C Increase in Tax Rates by means of Internal Laws and STF Judgments maintaining the tax rates increased before the enactment of Complementary Law 194/22 until December 31, 23, due to the modulation resulting from Theme No. 745

However, in late 2022, some states enacted internal laws restoring, until December 31, 2023, the tax rates for supply of electrical energy in excess of 18%, completely disregarding said complementary law. The following States could be mentioned as examples:

  • Piauí, which enacted Complementary Law No. 269 of December 8, 2022;
  •    Bahia, which enacted Decree No. 21.796 of December 23, 2022; and
  •    Mato Grosso do Sul, which enacted Decree No. 16.073 of December 28, 2022.

Bahia and Mato Grosso do Sul further require an additional amount on electrical energy supply services for the State Fund to Fight and Eradicate Poverty, and therefore the tax rates in effect for 2023 are the following for those three States:

  • Bahia: 26% for ICMS and 2% for FECOP;
  • Mato Grosso do Sul: 27% for ICMS and 2% for FECOP; and
  • Piauí: 27% for ICMS.

The grounds for restoration of increased tax rates as from January 1st, 2023 is the thesis that the modulation of effects decided by the STF at the trial of Theme No. 745 (RE 714.139), which established effectiveness, for the future, of the reduction in the tax rate as from fiscal year 2024, remains applicable even after enactment of Complementary Law 194/2022.

The STF apparently aligns to this understanding, considering that in ADI No. 7.122-GO, which was tried after enactment of the aforementioned Complementary Law 194/22, Justice Gilmar Mendes noted in his opinion that the STF upholds its understanding, as established in the general repercussion paradigm, Theme 745-RG, with respect to the modulations of the effects of the declaration of unconstitutionality (effectiveness as from 2024), irrespective of the subsequent enactment of Complementary Law 194/2022.

II.II.1.D.   Expectations for the Year 2024 with respect to Tax Rate Limitation

Due to the current scenario, in 2024 the state tax rates applicable to the supply of electrical energy are expected to comply with the STD decision and Complementary Law 194/22 in relation to application of a maximum tax rate of 18%.



In general, the ICMS tax base shall correspond to the transaction price – result of the sum of all amounts and charges inherent in the provision of electrical energy for consumption, plus the applicable ICMS amount, which have been charged, on any account, from the person indicated as recipient in the tax document as a result of the performance of an electrical energy supply agreement entered into between such person and the distribution company.

However, electrical energy concessionaires also include the transmission and distribution expenses (Transmission System Use Tariff – TUST and Distribution System Use Tariff) in the ICMS tax base, in addition to the client’s consumption, it being understood that they also add other charges passed on to third parties, which inflates the ICMS tax base, which should be levied only on the actual energy demand. 

Due to this practice, our courts discuss whether or not to include the TUSD and TUST tariffs in the ICMS tax base, in which respect there were recent developments. 

II.II.2.B Dispute about the Inclusion/exclusion of the Distribution System Use Tariff – TUSD and of the Transmission System Use Tariff – TUST in the ICMS tax base

TUSD (Distribution System Use Tariff) is the consideration paid to the public utility concessionaire for use of these electric systems in the generation and consumption of energy. TUST (Transmission System Use Tariff), in turn, is the tariff that remunerates the transmission system, and which is paid by the users of the electrical power Basic Grid: generators, distributors, free consumers, and traders that import and export electrical energy. Both the Distribution System Use Tariff (“TUSD”) and the Transmission System Use Tariff (“TUST”) are charged from the consumer of electrical energy, whether in the regulated or in the free contracting environment, and they are paid in consideration of use of the system (“wire usage”).

The majority understanding of the state courts and Superior Court of Justice (STJ) precedents is that these tariffs – TUSD and TUST – shall be excluded from the tax base of the ICMS levied on the consumption of energy, considering that the taxable event is the exit of the goods.

However, there is a dissenting opinion on this matter in the STJ. For that reason, this matter will be tried as a repetitive appeal and the processing of cases on this subject shall be stayed throughout the country (Theme 986/STJ).

The 2nd Panel of the STJ understands that the TUSD/TUST tariffs remunerate the engagement of an activity of means of transport of electrical energy that is not subject to the levy of such tax, since the mere transfer of goods from an establishment to another is not an ICMS taxable event. In this respect, tariffs relating to use of the distribution system, as well as that relating to connection charges, do not refer to a payment resulting from the consumption of energy, for which reason they are not part of the ICMS tax base. 

On the other hand, the 1st Panel decided that it would not be possible to divide the phases of energy supply for purposes of levying ICMS. The tax base would include both the generation and the transmission and distribution costs. 

Due to this majority understanding favorable to the taxpayers, Complementary Law No. 194/2022 was enacted. Article 2 of such law included article 3, item X in Complementary Law No. 87/96, to provide that as from 2022, no ICMS shall be levied on the TUSD and TUST, as follows:

 “Art. 3 The tax shall not be levied on:

X – transmission and distribution services and sectorial charges related to electrical energy transactions.  (Included by Complementary Law No. 194 of 2022)”

However, in 2022, various States filed the Direct Action for the Declaration of Unconstitutionality (ADI) No. 7195, to challenge the constitutionality of excluding the TUST and TUSD from the ICMS tax base, due to the new wording introduced by Complementary Law 194/22 to article 3, item X of Complementary Law No. 87/96. 

In the trial by the virtual full bench ended March 3, 2023, the Full Bench of the Federal Supreme Court ratified, by majority vote, the provisional remedy that had been granted by Justice Fux in said Direct Action for the Declaration of Unconstitutionality (ADI) to uphold the suspension of effectiveness of art. 2 of Complementary Law 194/22. Upon granting of the provisional remedy, the Justice Rapporteur had noted that said Complementary Law 194/22 might have usurped the law-making power attributed to the States: there is a “possibility that the Federal Government has exorbitated its constitutional power by interfering in the manner in which the member States exercise their taxing power”.   According to Justice Fux, Rapporteur in the ADI, article 2 of Complementary Law 194 could affect the municipalities, which receive a portion of the taxes collected by the states, which, in turn, alleged billionaire losses upon removal of the TUSD/TUST from the ICMS tax base.  However, the Justice also noted in his decision that the ICMS should be levied on the total amount of the transaction and not only on the consumed amount of the good, which is contrary to the aforementioned majority precedents of the STJ, according to which the ICMS is levied upon the electrical energy actually consumed by the taxpayer.

Based on the opinions rendered in the Full Bench, we note that there is a trend that the Justices analyze, in the merits of the ADI, in addition to the formal constitutionality of the rule, the reach of the ICMS tax base in transactions with electrical energy, and it might define the constitutionality or not, from a substantive perspective, of including the TUSD and the TUST in the respective tax base.

Thus, the pronouncement to be made by STF in ADI 7195 may affect the trial of the Repetitive Appeal in progress in the STJ.

As a consequence of ratification of the provisional remedy, effectiveness of the article challenged shall remain suspended until subsequent resolution. Consequently, the States are authorized to charge ICMS on the TUSD and TUST, except for those States that had already expressly excluded the TUSD and TUST of electrical energy from the ICMS tax base. 

As informed by JOTA on February 15, 2023, “ten states have allegedly removed the TUSD and TUSD from the ICMS tax base. Two of these states informed that they wish to reinclude the tariffs. Minas Gerais, in turn, has already annulled the decree that removed the tariffs from the ICMS tax base”. 

This decision shall at least strongly influence the case to be docketed for trial by the STJ in relation to Theme 986/STJ. 

In any case, this theme deserves to be monitored, considering that there may be a reversal in the hitherto dominant precedents on the matter, with a probable impact on the taxpayers’ electricity tariffs.


We provide below our comments on the taxation applicable to internal and interstate electricity supply transactions.


The distributors sell and physically deliver energy to captive consumers. To free consumers they only deliver energy, but do not sell it.  Therefore, these free consumers purchase energy directly from the generators or traders and pay them for he energy. For that reason, in principle, the generator or traders should be defined by law as ICMS taxpayers de jure.

 However, since 2009, the State of São Paulo promoted, through Decree 54.177/09, a change in the ICMS Regulations, providing that the distributors should act as substitute taxpayers and pay the ICMS due by the generators or traders, in the event of sale of energy to the free consumers. 

The Decree was challenged in the STF. Direct Action for the Declaration of Unconstitutionality (ADIn) 4281 was filed, which discussed the unconstitutionality of attributing to electrical energy distribution companies, by means of a decree, liability for the payment of ICMS levied on the sales of electrical energy carried out between traders and taxpayers of the State of São Paulo. Please note that this attribution of the capacity as substitute taxpayer of energy distributors resulted in an increase in the ancillary obligations and in the cost of compliance both to the energy distributors and consumers. The ADIN was granted in late 2020 by the STF, which acknowledged especially that only a law in the narrow sense (and not a decree) could transfer tax liability to third parties. The Court modulated the effects of the decision, and it produced effects only after publication of the Appellate Decision, for which reason the law of the State of São Paulo on electrical energy distribution transactions was subject to a deep and recent amendment in 2021, upon enactment of decrees 65.823/21 (already revoked) and 66.373/21. 

II.II.3.B CURRENT SCENARIO: DECREE 66.373/21- São Paulo changes the ICMS payment system in transactions with Electrical Energy in the Free Contracting Environment (ACL)

The new Decree revokes Exhibit XVIII to the ICMS Regulation of the State of São Paulo (RICMS-SP) and consolidates the rules on the matter in articles 425, 425-A to 425-H, and 426 of the RICMS-SP. Ordinance SRE 14/22 introduced the ancillary obligations relating to these provisions.

In short, it changed the payment of ICMS, which was previously made by the energy concessionaire (CPFL, EDP, ELEKTRO, ENEL, and ENERGISA) and informed by means of a Declaration (by the taxpayer) of the Purchase Price of the Electrical Energy in the Free Contracting Environment– DEVEC to the energy supplier.

The Decree basically implemented a new model of levy of ICMS on transactions with electrical energy in the Free Contracting Environment– ACL, as from April 1st, 2022, by establishing deferral of the ICMS to the time of the last transaction that results in the exit thereof to a establishment or domicile located in the São Paulo State territory to be consumed therein by the recipient in internal transactions involving electrical energy.

Those responsible for the assessment and payment of ICMS in interstate acquisitions are now the São Paulo state consumers and, in internal transactions, the seller. 

Therefore, with respect to liability for the assessment and payment of ICMS levied on Electrical Energy, it shall be attributed (articles 425 to 425-D of the RICMS/SP):

  • To the seller, located in the State of São Paulo, which carries out an electricity sale transaction to establishments located in the State of São Paulo for it to be consumed therein (internal transaction);
  • To the recipient consumer located on the State of São Paulo that purchases electrical energy from a seller located in another state (interstate transaction).

With respect to liability for the assessment and payment of ICMS levied on the Connection, it shall be attributed (articles 425 to 425-D of the RICMS/SP):

  • To the distributor responsible for operation of the network, in internal and interstate transactions, whenever the recipient is connected to the electrical energy distribution network;
  • To the addressee, in internal and interstate transactions, whenever it is connected to the basic transmission network, relating to assessment of the tax levied on the amount of the charges involved in the connection and use of that network.

Please see:

In case the seller is located in another State, the state enrollment of consumers of the State of São Paulo also became mandatory. 

There is also a provision on the simplified regime of ancillary obligations for consumers that are not originally taxpayers. 

II.II.3. c Internal Electrical Energy Distribution Transactions – Tax Rates

As provided in article 52, item V of the RICMS-SP, the following tax rates apply in the State of São Paulo:

  • twelve percent (12%) in relation to residential accounts with a monthly consumption of up to two hundred (200) kWh;
  • twenty-five percent (25%) in relation to residential accounts with a monthly consumption above two hundred (200) kWh;
  • twelve percent (12%) when used in the electrified public passenger transportation;
  • twelve percent (12%) in transactions with electrical energy used in rural properties, understood as those that actually maintain agricultural or cattle raising activities and which are enrolled with the ICMS Taxpayers’ Register.

Please note that the tax rates may differ in other States. In the State of Rio de Janeiro, as provided in article 14, item VI of Law No. 2.657/1996, the tax rates applicable to transactions involving electrical energy are the following:

  • eighteen percent (18%) for a consumption of up to 300 kilowatts/hour per month;
  • twelve percent (12%) for a consumption of up to 450 kilowatts/hour per month for residential clients that fall under the Special Program of Differentiated Tariffs, according to the ANEEL regulation, provided compliance with the requirements and considerations set forth in a Resolution to be published by the Treasury Office;
  • twenty-seven percent (27%) for a consumption above 300 kilowatts/hour per month to 450 kilowatts/hour per month;
  • twenty-eight percent (28%) if above 450 kilowatts/hour per month;
  • six percent (6%) when used in the electrified public passenger transportation.  

II.II.3.d  Interstate Electrical Energy Distribution Transactions

Transactions involving the supply of electrical energy to individuals or legal entities in different States are not subject to the levy of ICMS, as provided in article 155, item X, letter “b” of the Brazilian Federal Constitution:

 “Art. 155. It is incumbent upon the States and the Federal District to create taxes on:   

X – it shall not be levied:

b. on transactions that send oil, including lubricants, liquid and gaseous fuels derived therefrom, and electrical energy to other States.”

However, electrical energy distribution transactions shall only be entitled to said immunity if the acquiring individual or legal entity uses electrical energy to produce goods or provide services intended for trading or manufacturing. That means that pursuant to the provisions of article 2, paragraph 1, item III of Supplementary Law No. 87/96, to benefit from immunity, the energy may not be sold to end consumers. 

Please note that there are court rulings in which companies that purchased electrical energy in interstate transactions for use in the manufacturing or sale of other products were deemed end consumers of the energy, and therefore ICMS was levied on such transactions1.

1“TAX LAW. ICMS. ELECTRICAL ENERGY. INTERSTATE TRANSACTION. SALE TO END CONSUMER.  The Tax on the Circulation of Goods and Provision of Services is not levied on the exit of energy from the territory of a state to be levied on the entry into the territory of another; implementation, by art. 155, item II, paragraph 2, item X, letter ‘b’ of the Federal Constitution, on the one part, and by art. 2, paragraph 1, item III of Complementary Law No. 87 of 1996, on the other part, of the tax policy of attributing to the State of destination the collection of tax when it comes to electrical energy. If the electrical energy is part of a subsequent industrialization or sale cycle without being consumed, the tax is not levied; it shall be levied if the energy is consumed in the manufacturing or sale process of other products. Precedent of the Federal Supreme Court. (RE No. 198.088, SP, Justice Rapporteur Ilmar Galvão). Appeal to the Superior Court of Justice entertained, but denied.” (STJ, Justice ARI PARGENDLER, REsp 1340323 / RS, electronic Journal of Courts of March 31, 2014).

However, in the trial of RE No. 748.543, under the general repercussion system, theme No. 689, the Federal Supreme Court decided that in interstate transactions of supply of electrical energy, only the State of destination is empowered to collect ICMS from end consumers that use the electrical energy in the manufacturing process of products relating to their core activity, as follows:



    1. Only the States of destination (State in which the purchaser is located) may levy ICMS on interstate electrical energy transactions, pursuant to the provisions of article 155, paragraph 2, X, ‘b’ of the Federal Constitution. Precedents: RE 198088, Rapporteur: Justice ILMAR GALVÃO, Full Bench, Journal of Courts (DJ) 09/05/2003.
    2. Appeal to the Federal Supreme Court brought by the State of Rio Grande do Sul granted to deny the claim made in the complaint. Theme 689 established the following thesis of general repercussion: “Pursuant to article 155, paragraph 2, X, b of CF/1988, the State of destination is entitled to the entirety of the ICMS levied on interstate electrical energy supply transactions to end consumers, for use in manufacturing processes, and the State of origin cannot levy such tax”.”(APPEAL TO THE FEDERAL SUPREME COURT No. 748.543 RIO GRANDE DO SUL, RAPPORTEUR: JUSTICE MARCO AURÉLIO, TRIAL DATE: 08/05/2020)

Such appeal became final and unappealable on November 7, 2020, and all proceedings involving this matter in the Brazilian territory shall be tried in accordance with the decision of the Supreme Court. 

With respect to the tax rates, we provide below, for illustration purposes, the tax rates applicable in the States of São Paulo and Rio de Janeiro:

II.II.3.D. Tax Rates

As provided in article 52, item II and III of the RICMS/SP, the following tax rates apply in the State of São Paulo:

  • In interstate transactions destined to the States of the North, Northeast, and Center-West regions and to the State of Espírito Santo: seven percent (7%) and
  • In interstate transactions destined to the States in the South and Southeast regions: twelve percent (12%)

There may be a variation in the other States, according to their locations in the Brazilian Regions.

Pursuant to article 14, item III of Law No. 2.657/1996, the following tax rates shall apply to interstate transactions in the State of Rio de Janeiro:

  • whenever the recipient, whether or not a taxpayer, is located in the North, Northeast, Center-West regions and in the State of Espírito Santo: seven percent (7%);
  • whenever the recipient, whether or not a taxpayer, is located in the other regions: twelve percent (12%).

II.II.4. Simplified Taxation Regime in the State of São Paulo:

Ordinance No. 14/2022 of the State Revenue Office (SRE) provides on a Simplified Taxation Regime for the levy and payment of the tax by the recipients, whenever their capacity as taxpayer results exclusively from the electrical energy transactions.

This Simplified Regime shall imply a waiver of presentation of the GIA/SP and of the EFD ICMS-IPI. However, throughout the period during which the recipient is subject to said regime, the use of any credits of such tax shall be prohibited.


II.II.5.1. Exemption to Rural Producers

There is exemption of ICMS, as provided in Confaz Convention 76/91, on the supply of electrical energy to rural establishments, upon satisfaction of the conditions (engage in agricultural or cattle-raising activities, be enrolled with the ICMS Taxpayers’ Register)

II.II.5.2. Benefits for GD – Distributed Generation – Modalities

There is currently an exemption granted by the States and by the Federal District, as a result of ICMS Convention 16/2015, for transactions involving distributed generation. The legal system in effect permits the granting of tax exemptions until December 31, 2032, with annual reduction of the benefit by 20% as from January 1st, 2029.

Recently, in February 2023, the State of São Paulo extended the exemption of ICMS in internal transactions with electrical energy carried out by micro- and mini-generators to other modalities of distributed generation and solar photovoltaic power generating plants with installed power of up to 5MW (Decree 67.521/2023/ art. 166, Exhibit I to RICMS-SP)


This municipal contribution is levied on electrical energy and is named CIP or COSIP, and its purpose is to pay for the municipalities’ public lighting services, improving the lighting of all public roads, squares, viaducts, roads, and tunnels, making them safer.

The CIP varies in accordance with the tax rates established by each municipality. As a general rule, the tax rates are related to the electricity load made available by the concessionaire and the type of consumer.

Authors: Sabine Ingrid Schuttoff / Claudia Derenusson Riedel / Camila Santana

De Luca, Derenusson, Schuttoff & Advogados

Rua James Joule, 92 – 6th floor – Brooklin

04576-080 – São Paulo – SP

Phone: +55 (11) 3040 4040

[email protected]