Cloud computing 

Brazil’s tax laws have generally not been updated to address cloud computing transactions and there is no clear guidance in Brazil’s tax regulations as to the taxation of cloud computing. Under existing laws, cloud computing transactions can be most likely characterized as either license of software or provision of services.

In general terms, payments remitted abroad in consideration for software licenses and services are subject to the following taxes:

  • Software license : 15 percent IRRF, 2 percent to 5 percent ISS and 0.38 percent IOF-Exchange, which results in a roughly combined rate of 18.38 percent.
  • Provision of services : 15 percent IRRF, 9.25 percent PIS/COFINS-Import, 10 percent CIDE, 2 percent to 5 percent ISS 1 and 0.38 percent IOF-Exchange, which results in a roughly combined rate of 37.63 percent.

Data center 

A tax ruling from 2014 of the Brazilian Federal Revenue Department 2 concluded that the payments made by Brazilian customers to foreign vendors for the provision of data centers (infrastructure for storing and processing data for remote access) should be treated as payments for services.

Prior to this ruling, it was not clear whether the provision of foreign data centers to Brazilian customers should be taxed (i) as the rental of equipment for storage and/or data processing or (ii) as a service. The ruling concluded that, because servers and related equipment are not physically transferred to the Brazilian customers, the provision of data centers has the nature of a complex and indivisible set of services rather than the nature of a rental of movable goods.

The distinction is relevant from a tax perspective because payments to a foreign resident for the rendering of services are generally subject to 15 percent IRRF, 10 percent CIDE, 9.25 percent PIS/COFINS-Import, 2 percent to 5 percent ISS and 0.38 percent IOF-Exchange, whereas payments to a foreign vendor for the rental of movable goods are usually subject to 15 percent IRRF and 0.38 percent IOF-Exchange. 

License of software 

Based on Brazilian law, there are arguments to support that payments for software licenses ("custom made" or "standardized"/“off-the-shelf” 3 ) should be subject to a tax treatment similar to the one applicable to payments for copyrights.

In the cloud computing context, if the Brazilian customer’s main objective is to acquire the ability to use a software program/application, the tax treatment should arguably be the same as for a regular license of software.

The distinction is relevant from a tax perspective because payments to a foreign resident for the rendering of services are generally subject to 15 percent IRRF, 10 percent CIDE, 9.25 percent PIS/COFINS-Import, 2 percent to 5 percent ISS and 0.38 percent IOF-Exchange, whereas payments to a foreign resident for a license to use software are usually subject to 15 percent IRRF, 2 percent to 5 percent ISS and 0.38 percent IOF-Exchange.

Subscription fees paid to a foreign resident in consideration for the use of software could reasonably be treated as payments for the license of software, arguably subject only to 15 percent IRRF and 0.38 percent IOF-Exchange (although the municipal tax authorities understand that the ISS is due on payments for software imports, there are grounds to question the ISS levy in courts).