Don't be lax on tax: Tax legislation in Brazil
Learn more about Income tax, State taxes and Municipal taxes in Brazil.
Individuals as well as companies are subject to federal income
tax in Brazil.
Personal Income Tax (IRPF)
Income tax in Brazil is a progressive tax, which ranges from 7.5% to 27.5%. The minimum and maximum of each tax rate level changes each year.
Currently there are 4
tax rate levels in Brazil: 7.5%, 15%, 22.5% and 27.5%. Individuals have to figure their income taxes using one of two different methods: the so-called Green Method and the Blue Method.
The former one allows a standard deduction of 25% and additional deductions for each dependent. The latter one is a method which allows to add up specific deductions like medical, educational and alimony expenses. Naturally, if using the blue method it is obligatory to account for all expenses by collected invoices.
In order to make use of either these tax calculation methods, you need to be a resident of Brazil. An individual is considered a resident if they carry a permanent visa, have a temporary visa with an employment agreement or when they have been in Brazil for more than 183 days in any twelve month period. All non-residents are subject to a flat 27.5%
tax on all income earned in Brazil.
Also, if an individual receives interest on savings (exceeding a certain amount) or enjoys capital gains, this is also subject to income tax. On the other hand, dividend income received from Brazilian companies is tax exempt.
Corporate Income tax (IRPJ)
corporate income tax in Brazilis up to a 34% rate on net profits, applying to resident companies only. This tax consists of three parts:
– 15% flat tax
– 10% surtax if the annual income exceeds a certain amount
– 9% for social contributions.
A foreign company is only considered ‘resident’ if it is incorporated in Brazil.
Fortunately, some Brazilian corporate tax deductions may apply like losses in former years (to a certain extent) and depreciations. Companies involved in technical research can use accelerated depreciation.
Social Security (Instituto Nacional do Seguro Social – INSS)
In Brazil, employers as well as employees have to contribute to social security schemes. In general, currently the employer needs to pay 37.3% of the gross salary of the employee and the employee needs to pay between 7.65% and 11% of the gross salary. The employee's payment is limited to a maximum, which is each year reconsidered upon a governmental contribution salary table.
The two most important tax laws executed by the state of residence are motor vehicle tax and taxes on goods and services.
|Motor Vehicle Tax (Imposto Sobre a Propriedade de Veiculos Automotores – IPVA)
For every registered motor vehicle in Brazil, an annually tax needs to be paid. The rates are varying by each Brazilian state, but is calculated upon the make, age and current market value of the vehicle.
In general, cars are cash cows in Brazil: the IPVA tax is relatively high. On the other hand, most states allow a discount if paid by a certain date as well as allowing monthly payments over the year.
Taxes on Goods and Services (Impostos Sobre Circulação de Mercadorias e Prestação de Serviços – ICMS)
This is the equivalent of
Value Added Tax in Brazil. While there is not an official sales tax in Brasil, every manufacturer, distributor, retailer or provider in almost every line of business pays the state ICMS and recharges the tax expense to the consumer. There are some exemptions, mainly pertaining to goods bound for exportation, raw materials and interstate transmission of electricity and fuels. The only exemption that has an impact to the man in the Brazilian streets is a remarkable one on newspapers, magazines and books.
To a large extent, ICMS is a hidden tax: it is not noted on any invoice. Most consumers in Brazil do not know how much ICMS is affecting their spending power. The entire system of taxes on goods and services in Brazil is very nontransparent. Each type of product has its own average percentage of ICMS added, which can run for instance from 18% on rice to a whopping 56% on beer.
The two most important tax laws executed by the municipality of residence in Brazil are Tax on Services and Real Estate Tax.
The former (ISS) is a head tax paid by both owners of enterprises and self-employed individuals who are registered and doing business within a city. The exact rate is variable and depends upon the individual municipality or city.
The latter (IPTU) is an annually property tax on all real estate, based upon the value of the property. The exact rate is variable and depends upon the individual municipality or city. Usually you are allowed a discount if paid by a certain date as well as allowing monthly payments over the year.