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Tax Specialist Group
Corporate Tax Guide: Brazil
Brazil

Members:

The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
Brazil
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
15% (Corporate Income Tax - CIT), 10% (Corporate Income Tax Surtax) and 9% (Social Contribution Tax – CST). Financial institutions, private insurance companies and capitalization companies pay CST at higher rates.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
World income.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
15% (Corporate Income Tax - CIT), 10% (Corporate Income Tax Surtax) and 9% (Social Contribution Tax – CST). Financial institutions, private insurance companies and capitalization companies pay CST at higher rates.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Corporation (Sociedade Anonima), Limited Liability Company (Sociedade Limitada), Partnership (Sociedade em Conta de Participaçao), among several others.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
15% - 30%, depending on the case.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
Not permitted.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
  • Reduced tax rate: Federal government offers reduced Income Tax rates in certain regions.
  • Tax Holiday: No.
  • Special Depreciation available under certain circumstances.
  • R&D: tax benefits for investments in infrastructure and research and development (R&D).
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Yes. 2:1 debt to equity ratio, excess interest not deductible. If financing arrangement is executed with party established in a low tax jurisdiction or privileged tax regime, debt to equity ratio is 0.3:1.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Yes. Rules apply to cross-border transactions between Brazilian companies and foreign related parties or foreign parties resident in low tax jurisdictions and privileged tax regimes. Rules do not follow OECD guidelines.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
Yes. Profits of a controlled foreign company (CFC) of a Brazilian company are subject to income taxation on December 31 of each year, regardless of an actual distribution of such profits. Some qualifying CFCs are taxed on an entity-by-entity basis. Provided certain conditions are met, a tax consolidation of CFCs can be made at the level of the Brazilian shareholder.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Dividends are income tax free.
Additionally, in order to repatriate the invested capital, Brazilian companies are allowed to distribute earnings to their shareholders in the form of interest on net equity (JCP). JCP is usually tax deductible and subject to a 15% WHT.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
Yes. A foreign tax credit is generally available to Brazilian companies on income taxes paid abroad. In general, the foreign tax credit is limited to the amount of CIT and SCT paid in Brazil on the foreign-source income.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Tax losses may be carried forward with no timing limitations, but can only offset up to 30% of the company’s taxable income in the tax period. There is no carry back available.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Yes
  • Income Tax: 32
  • TIEA: 9 (only 1 fully implemented)
  • LOB provisions: generally not available.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
TREATYNON-TREATY
Interestarm's length15%15% - 25%
 related15%15% - 25%
Dividends15%0%
Rental Real Estateno reduction15% - 25%
Rent – OtherP.E. exemption15% - 25%
Royalty15%15% - 25%
Management Fees15%15% - 25%
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
January 1 – December 31.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Generally due 7 months after year-end.
The typical tax instalment requirements are noted.
Yes, monthly instalments under certain circumstances, depending on the adopted tax regime.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
Due 1 month after year-end (normally an estimate is paid and adjusted when tax return is filed).
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
Generally 5 years.
If a country has exchange controls, this is noted, together with the main requirements.
Yes.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Yes, several.
PIS/COFINS – Federal VAT-type gross revenue taxes at combined rates varying from 3.65% to more than 12%.
ICMS – State VAT-type tax on sales at rates varying from 0% to 25%.
IPI – Federal VAT-type excise tax at rates varying from 0% to more than 300%.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
No.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Generally none.
Where significant, other taxes are noted.
Payroll taxes, service taxes, real estate property taxes, others.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
Yes, several objective and subjective anti-avoidance rules.
Treaty Shopping:
No express rules.
Economic Substance:
No formal concept of this.
Other:
Numerous specific anti-avoidance rules and limitations.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Capital gains on sale of shares by non-resident is taxable. Capital gains on sale of Brazilian business assets is taxable.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
Step up available on share deals and asset deals, with different and complex requirements.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Rulings not required. Only used in specific situations.
31. Other
Other important aspects of the tax system are noted.
Extensive electronic reporting, complex environment.