Presentation to Students of the School of Business, University of Victoria, Canada in São Paulo 11 April 2013

1. The Brazilian Tax System
Presentation to Students of the School of Business,
University of Victoria, Canada in São Paulo 11 April
2013

2. Tax on Corporate Profits (Income Tax )
WORLD WIDE INCOME BASIS
Companies domiciled in Brazil are liable to
Corporate Income Tax on income arising both
in Brazil and overseas. Brazilian branch offices,
agencies or representative offices of companies
domiciled abroad are subject to income tax on
income arising in Brazil.

3. Tax Rate
 The basic rate of Income Tax on corporate
profits (including capital gains), as adjusted for
tax purposes, for the year 2013 is 15% with an
additional surtax of 10% on taxable profits
exceeding R$240,000 (approximately US$
120,000 per annum.

4. Tax Basis
 Income Tax is payable based on either real, presumed
or imputed profits (“lucro real, presumido ou arbitrado”).
Law nº 9.249/95 et al
 The so-called “real” profit is represented by accounting
profit as adjusted for tax purposes, whilst the estimated
or imputed profits are calculated by applying a
percentage over the company’s turnover to determine
the “profit” figure, upon which Income Tax is
calculated at the rates indicated above. The imputed
profit basis is used when a company fails to produce
proper accounting or make annual tax returns and is
calculated based upon the application of certain
percentages fixed in law to the company’s turnover.

5. Treatment of Expenses
 Income and expenses are to be recognized on an
accrual basis and the general rule for the deduction of
expenses is that they should be “necessary to the
activity of the company and the maintenance of the
respective income producing source.” Necessary
expenses are considered to be those “paid or incurred
and which may be considered normal or usual in the
company’s transactions, operations or activities.”
Certain expenses, such as medical assistance, are only
considered deductible when the benefit is extended to
all the company’s employees and are not permitted if
only extended to, say, the company’s directors.

6. Losses
 The losses originated in an accounting period may be
carried forward for relief against future profits, without
time limit, but the offset is limited to 30% of current
year taxable income. No carry-back of losses is allowed
under Brazilian legislation.
 Pre-operational (start up expenses) should be treated as
deferred assets and amortized over a period of not less
than five years from the date of commencement of
operations.

7. Social Contribution on Net Profits
 In addition to the liability for income tax on profits,
as referred above, a company is liable to social
contribution tax (“Contribuição social sobre o lucro” –
“CSLL”) upon its income and capital gains.
 The applicable tax rate is 9%.
 Effective Tax Rate on profits – 34%

8. Capital Gains on Foreign Direct Investment
 Capital Gains arising on the disposal by non-residents
of investments registered with the Central Bank
(BACEN) are liable to tax at source at 15%. Where the
investor is resident in a tax haven jurisdiction the rate is
25%.
 Base value for the calculation is the foreign currency
investment registered with BACEN.
 Tax still applies even if sale takes abroad

9. WITHHOLDING TAXES
 Dividends – zero
 Interest – 15% or 25% if tax haven
 Royalties – 15% (plus CIDE 10%) or 25% (plus
CIDE) if tax haven
 Service payments – 15% plus CIDE

10. CIDE
 Since 1 January 2002, the contribution for Intervention in the
Economic Domain (“CIDE”) is also due over the amounts paid,
credited, delivered, used or remitted, on a monthly basis, to non-
resident beneficiaries, for royalties and remuneration in the following
types of contracts:
 a) Licensing and assignment of patents;
 b) Technical support (in relation to technical assistance and
specialized technical services)
 c) Assignment and licensing of trademarks;
 d) Software supply (only when occurs the transfer of its technology);
 e) Technology supply; and
 f) Contracts for the supply of technical services, administrative
assistance and other similar services.
 This contribution is levied at rate of 10 per cent over the amounts paid,
delivered, credited, used or remitted per month as payments under the
types of agreements mentioned above to beneficiaries who are resident
abroad.
 Due to its specific tax incidence, the provisions of treaties to avoid
double taxation to which Brazil is a signatory are not available to
permit any reduction or exemption in relation to this base.

11. TAX TREATIES
 Brazil has signed double taxation treaties with
Argentina, Austria, Belgium, Canada, Chile, China, the
Czech and Slovak Republics, Denmark, Ecuador,
Finland, France, Hungary, India, Israel, Italy, Japan,
Luxembourg, Mexico, Netherlands, Norway,
Philippines, Portugal, South Africa, South Korea, Spain,
Sweden and Ukraine.
 No Tax Treaty with the UK or USA.
 Brazil not a member of OECD.

12. OTHER CONSIDERATIONS
 Thin Capitalisation Rules (2:1)
 Transfer Pricing legislation effective since 1997
(connected companies and tax havens)
 CFC Legislation
 Amortisation of goodwill on acquisition through
Brazilian corporate vehicle

13. Other Taxes
 Social Contribution on Invoicing - COFINS
 This tax is levied on a non-cumulative basis at a general rate of
7.6 per cent on the gross revenue from sales of merchandise and
the rendering of services.
 For those companies that ascertain their profits using the
“presumed profit basis”, and for some kinds of revenue arising
from some specific business activities, this tax is levied on a
cumulative basis at a general rate of 3 per cent on the gross
revenue from sales of merchandise and the rendering of services.
 As of 2004, COFINS is also levied on imports of products,
equipment and services from abroad at general rate of 7.6%. In
relation to services, COFINS is levied on those rendered by a
foreign-base legal entity or individual even if those services are
rendered directly in Brazil and for services whose results can be
“verified” in the country.

14. Other Taxes
 Contribution to the Social Integration Program - PIS
 This contribution is generally charged on a non-cumulative at
rate of 1.65 per cent on the gross revenue from sales of
merchandise and the rendering of services.
 For those companies that ascertain their profits using the
“presumed profit basis”, and for some kinds of revenue
arising from some specific business activities, this tax is levied
on a cumulative basis at a general rate of 0.65 per cent on the
gross revenue from sales of merchandise and the rendering of
services.
 As of 2004, PIS is also levied on imports of products,
equipment and services from abroad at general rate of 1.65%.
In relation to services, PIS is levied on those rendered by a
foreign-base legal entity or individual even if those services are
rendered directly in Brazil and for services whose results can
be “verified” in the country.

15. Other Taxes
 Tax on Industrial Products - IPI
 IPI is a federal tax charged on industrial products at selective rates varying
according to the class of products per the classification in the table included
in the IPI tax law (Law 4.502/64 and Decree-Law 34/66).
 According to Law 9.532/97, products for export can leave the industrial
establishment with suspension of the IPI when:
 a) Acquired by an export trading company, with specific purpose of export;
and
 b) Remitted to customs deposit areas or other places where the customs
brokerage takes place.
 An industrialised product is considered as being a product resulting from an
operation that modifies the nature, function, finish or appearance of a
product. The rate varies and depends on the classification of the goods as
specified by the law.
 The IPI tax on the wholesale purchase price of goods is registered as a credit
in the books of the purchaser and, on the sale of the finished product, the
amount of tax shown on the invoice is registered as a debit. The balance
which results each month is the tax to be paid to the federal authority.
 IPI is also levied on the importation of goods and equipment.

16. Other Taxes
 Tax on Operations on the Circulation of Merchandise and
Services – ICMS
 The tax on operations on the circulation of merchandise and
services (“ICMS”) is a state tax charged on all products. In the
case of São Paulo, the rate is generally 18 per cent of the value of
the merchandise or services. When materials are purchased, the
ICMS tax is already included in the price. In operations between
South of Brazil and the Southeast, the rate is 12 per cent, and
between the North, Northeast, Middle-West regions and the
state of Espírito Santo the rate is 7 per cent (Article 52 of State
Decree 45.490/2000). ICMS and IPI calculations are identical.
 ICMS is also levied on the importation of goods and equipment.

17. Other Taxes
 Import tax - The Common External Tariff
 Mercosul introduced the Common External Tariff –
CET, created by the Protocol of Buenos Aires and in
Brazil by Decree 1.343 of 23 December 1994 as
amended.
 The CET tariff applicable to trade between any
signatory of Mercosul with third-party countries and
varies between 0% and 35% depending upon the
product.
 For imports from other countries, the rates vary based
on the fiscal classification of the product, pursuant to
Decree-Law 37/66.

18. Other Taxes
 Service Tax - ISS
 ISS is a tax charged by the municipal authorities on the
rendering of services. In the city of São Paulo, according to
Municipal Law 13.701/03 of 24 December 2003, the tax is
generally charged at rate of 5% on the services value. For
some activities there are lower rates (2 and 2.5 per cent) and
there are special tax regimes for specific services such as legal,
accounting, medical etc.
 As of January 2004, ISS is levied on the purchase of foreign
services. Based on that, the Brazilian beneficiary is liable for
the payment of this tax. In addition, ISS is also levied on
exportation of services when the results occur in Brazil
(despite the fact that payment is made by a foreign resident).

19. Other Taxes
 Real Estate Transfer Tax and Tax on Inheritances
and Donations
 Tax Levied on Urban Property
 Tax On Financial Operations (IOF)
 Additional Contribution Over the Freight for
Shipping Renewal (AFRMM)

20. Thank You
Robert E. Williams
Partner – International Tax Department
rew@noronhaadvogados.com.br
www.noronhaadvogados.com.br
Av. Brigadeiro Faria Lima, 1485 - Torre Norte -
17º Andar 01452-002 São Paulo-SP Brasil
Tel: 55-11 5188-8090 | Fax: 55-11 5184-0097