Federal taxes
State taxes
Municipal taxes
Corporate income tax
Withholding income tax
Revenue tax
Excise tax
State sales tax
Import duties
Finance tax
Tax reform


The Brazilian tax system is one of the most complex tax systems in the world. Brazil is one of the few countries to have a constitutional tax system. Moreover, the Constitution has an entire chapter dedicated to the national tax system.

The Constitution grants specific taxing authority to federal, state and local governments. It lists all the taxes(1) and grants authority to the corresponding level of government authorised to create and collect the tax. The articles of the Constitution also lay out principles pertaining to taxpayers' rights and various limitations.

Constitutional principles pertaining to which level of government is authorised to levy specific taxes often lead to disputes regarding the constitutionality of tax measures. The Constitution also details various tax rules, including:

  • general tax rules;
  • exceptions to the general tax rules; and
  • specific principles for creating and changing the tax rules.

These must be followed by all tax authorities, whether federal, state or local.

Although the constitution provides several means for the federal government to create new taxes, similar opportunities for state and local governments are limited. As a result, the vast majority of the Brazilian tax burden is at the federal level.(2)

In addition to the express constitutional taxing authority given to the federal government, the executive branch of the federal government frequently uses provisional measures to create and change taxes. Provisional measures become effective and enforceable immediately, becoming subject to congressional approval only after they have been enacted.

Federal taxes

The main body that manages the collection of federal taxes is the Federal Revenue Department.(3) The federal government has the competence to legislate, as well as to collect the following taxes:

  • import tax;
  • export tax;
  • individual income tax;
  • corporate income tax;
  • withholding income tax;
  • PIS/COFINS (revenue tax);
  • IPI (excise tax);
  • IOF (finance operation tax);
  • wealth tax;(4) and
  • rural real estate tax.

State taxes

Each state has a government department that manages state tax. In the state of Sao Paulo, state tax is managed by the state revenue department.(5)

The states and the federal district have the authority to levy and collect the following taxes:

  • mortis causa (ie, in prospect of death) succession and donation tax;
  • ICMS (state value added tax (VAT)); and
  • vehicle property tax.

VAT is non-cumulative. Rates are determined in accordance with the utility and essentiality of the good or service.

Some states provide for certain VAT incentives in the form of exemptions and reductions. VAT incentives are granted on a case-by-case basis in order to attract investment or stimulate critical industries. States often use VAT incentives in order to attract and compete with one another with respect to business development. This practice has led to what is commonly referred to as state tax wars.

Municipal taxes

Like the states, each municipality has a government department that manages local tax. In the city of Sao Paulo, city tax is managed by the local revenue department.(6)

Municipal governments have the authority to levy and collect the following taxes:

  • urban real estate tax;
  • inter vivos real estate transmission tax;(7) and
  • ISS (service tax).

Corporate income tax

The total rate of corporate income tax in Brazil is 34%. The tax rate can be divided into the following categories:

  • Corporate tax on net profit - the rate of corporate income tax is 15% of annual net profit. An additional surtax of 10% is assessed on net profit greater than R240,000; and
  • Social contribution on net profit - the social contribution on net profits (CSLL) is also calculated according to annual net profit. At present, the rate of CSLL is typically 9%.(8)

Calculation methods
The corporate income tax and CSLL can be calculated on either:

  • an actual profit basis; or
  • a deemed profit basis.

Actual profit method
Under the actual profit method, both CSLL and corporate income taxes are calculated based on the actual net profit of the given period (where actual net profit is calculated by deducting total costs and expenses from the total revenue), as follows:

  • Corporate income tax is calculated by multiplying the actual net profit by 25%.
  • CSLL is calculated by multiplying the actual net profit by 9%.

Deemed profit method
Under the deemed profit method, net profit is determined by the government 'deemed' rate of profit. The deemed rate varies based on the type of business. The deemed rate of profit used to calculate corporate income tax and CSLL for services is 32% (ie, deemed net profit is calculated by multiplying the revenue by 32%). Corporate income tax and CSLL rates are then calculated as follows:

  • Corporate income tax is calculated by multiplying the deemed net profit by 25%.
  • CSLL is calculated by multiplying the deemed net profit by 9%.

The deemed rate of profit used to calculate corporate income tax for the sale of goods is 8% (ie, deemed net profit is calculated by multiplying the revenue by 8%). Corporate income tax is then calculated by multiplying the deemed net profit by 25%.

The deemed rate of profit used to calculate CSLL for the sale of goods is 12% (ie, deemed net profit is calculated by multiplying the revenue by 12%). CSLL is then calculated by multiplying the deemed net profit by 9%.

Where an entity both sells goods and provides services, the deemed rate of profit for services and sales do not change. Respective rates are applied to revenue relating to each business activity (ie, sale of goods or services rendered).

The deemed profit basis can be used only by companies that meet the following threshold criteria:(9)

  • The company's annual revenue does not exceed R48 million;
  • The company does not receive profits, income or capital gains outside Brazil; or
  • The company does not perform finance-related activities.

Withholding income tax

Income, capital gains and other earnings paid, credited or remitted by a Brazilian source to a foreign-based individual or legal entity, are subject to withholding income tax, at a rate of:

  • 25% for income reported by employees or service providers;
  • 25% for income paid to a person residing in a favourable tax regime jurisdiction (ie, income tax rate below 20%);
  • 15% for remittances of royalties or payments for services entailing technology transfer, copyrights, royalties on trademarks and patents, technical services, technical assistance and administrative assistance (the contribution on economic activities must also be paid by the Brazilian entity at a rate of 10%);
  • 15% on interest payments;
  • 15% on payments pertaining to interest on net equity (for corporate income tax and CSLL purposes, deductibility of such interest payment is limited to 50% of either profits accrued in the given period or accumulated profits of prior periods); or
  • 15% for capital gains earned by a foreign-based company from the sale of assets or rights located in Brazil (this tax is withheld by the Brazilian legal representative of the payer).

Revenue tax

PIS/COFINS taxes are levied on imports and the resulting revenue is used by the government for unemployment and social security funds. Rates for PIS/COFINS differ depending on the method adopted for calculating corporate income tax and CSLL (either on an actual profit basis or a deemed profit basis), as follows:

  • PIS/COFINS (output) - a combined rate of 9.25% is levied on the company's gross revenue under the non-cumulative regime actual profit calculation method;
  • PIS/COFINS (output) - a combined rate of 3.65% is levied on the company's gross revenue under the cumulative regime deemed profit calculation method; and
  • PIS/COFINS import (input) is also levied on the import of goods at the combined rate of 9.25%.

Excise tax

IPI is a federal VAT levied on the manufacture of goods and import of manufactured products. Unlike most taxes, the government can raise rates without approval from Congress. Moreover, it can be collected in the same year that the modifying decree in enacted.

The IPI tax rate varies depending on the nature of the product and is determined by the product's tariff classification. Rates are generally higher for non-essential goods (eg, cigarettes and perfumes).

State sales tax

ICMS is similar to federal VAT and payable at each phase of the sales chain (from the manufacturer to the final consumer). Similar to IPI, ICMS rates vary depending on the nature of the product. In the state of Sao Paulo, the rate is generally 18%.

Import duties

Import duties are levied at the clearance of the imported goods. Here, rates also vary according to the good's tariff classification. Generally, the Customs Valuation Agreement provides the taxable basis applicable to import duty (ie, the taxable basis is equal to the total of cost plus insurance and freight).(10)

Finance tax

IOF is a federal tax levied on financial operations. Rates generally vary from 0.38% to 25% and depend on transaction type. In some cases, the rate can be zero.

Transactions affected include credit transactions, inter-company loans, loans between companies and individuals, foreign exchange transactions, insurance transactions made by insurance companies, securities transactions and transactions with gold as a financial asset, or currency instruments.

Tax reform

Comprehensive tax reform is the best way to simplify the tax system, but politically this is extremely difficult to accomplish.

The most discussed and popular proposed tax reform is to convert the existing state ICMS taxes into a single federal VAT. However, there is great controversy and disagreement regarding who should receive the tax revenue associated with interstate transactions. While states in the north (which are not major manufacturers) would like the tax to be payable to the recipient state, states in the south (which have well-developed industries) want the tax to be payable to the state that produces the good or service.

Commentators and politicians generally agree that simplifying the system is positive and should be done. However, political gridlock and divergent interests have prevented reform. Without any real prospects of tax reform or simplification of the system, the government's method for promoting economic goals has been to create special tax regimes excluding certain preferred investments from the general tax rules. These preferred investments include:

  • infrastructure projects;
  • exports;
  • ports;
  • civil construction;
  • aircraft; and
  • the automobile industry.

While theses regimes may stimulate favoured economic sectors, they only make the tax system even more complex.

For further information on this topic please contact Ricardo Ciconelo, Lucas Kurtz or Daniel Takaki at Manhães Moreira Advogados Associados by telephone (+55 11 3145 9555) or email ([email protected], [email protected] or [email protected]).


(1) The list of taxes is as follows:

Tax name (English)

AcronymTax name (Portuguese)

Description and comments

Federal taxes

Import tax

IIImposto de Importação


Export tax

IEImposto de Exportação

Only applies to a few products

Personal income tax

IRPFImposto de Renda das Pessoas Fisicas


Corporate income tax

IRPJImposto de Renda das Pessoas Jurídicas


Withholding income tax

IRRF / IRFImposto de Renda Retido na Fonte


Revenue tax

PISPrograma de Integração Social

Gross revenue tax

Revenue tax

COFINSContribuição Social para o Financiamento da Seguridade Social

Gross revenue tax

Excise tax

IPIImposto sobre Produtos Industializados

Applies to manufactured products and the first sale of imported products

Finance operation tax

IOFImposto sobre Operações de Crédito, Cámbio e Seguro ou relativas a Tpitulos or Valores Mobiliários

Applies to credit, foreign exchange and insurance transactions

Wealth tax


Discussed in Constitution, but not currently collected

Rural real estate tax

IFRImposto Territorial Rural


State taxes

Death succession and donation tax

ITCMDImposto sobre Transmissões Causa Mortis e Doações de Qualquer Bem ou Direito


State VAT

ICMSImposto sobre operações relativas à Circulação de mercadorias e prestação de Serviços de transporte interestadula e intermunicipal e de comunicação

Non-cumulative, state VAT on the circulation of goods and services

Vehicle property tax

IPVAImposto sobre Propriedade de Veículos Automotores


Municipal taxes

Urban real estate tax

IPTUImposto sobre a Propriedade Predial e Territorial Urbana


Real estate transfer tax

ITBIImposto sobre Transmissão inter vivos de Bens e Imóveis e de direitos reais a eles relativos

Generally not levied on real estate as capital contributions

Service tax

ISSImposto sobre Serviços de Qualquer Natureza


(2) Other factors are also relevant.


(4) While the Constitution grants the federal government the power to levy a wealth tax, it has never been enacted.



(7) Inter vivos real estate transmission tax is not levied on the real estate used as capital injection, unless the operational business activity of the company corresponds to the purchase and sale, rent or leasing of real estate.

(8) The rate for financial institutions is 15% (Article 3 of Law 7.689/88, amended by Article 17 of Law 11.272/08).

(9) Other minor criteria may apply.

(10) If the importer and exporter are related parties and that relationship has affected the import price, transfer pricing rules will apply.