brazil 2011 vat gst

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GLOBAL INDIRECT TAX

BrazilCountry VAT/GST Essentials

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b | Brazil: Country VAT/GST Essentials

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.


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Brazil:Country VAT/GST Essentials

Contents

Scope and Rates 2

What supplies are liable to VAT? 2

What is the standard rate o VAT? 2

Are there any reduced rates, zero rates, or exemptions? 3

Registration 4

Who is required to register or Brazilian VAT? 4

Are there penalties or not registering or

late registration? 4

Are there any simplications that could avoid the

need or an overseas company to register or VAT? 4

VAT Grouping 5

Is VAT grouping possible? 5

Can an overseas company be included in a VAT group? 5

Returns 5

How requently are VAT returns submitted? 5

Are there any other returns that need to be submitted? 5

VAT Recovery 6

Can I recover VAT i I am not registered? 6

Does your country apply reciprocity rules or reclaims

submitted by non-established businesses? 6

Are there any items that you cannot recover VAT on? 6International Supplies o Goods and Services 7

How are exports o goods and services treated? 7

How are goods dealt with on importation? 7

How are services which are brought

in rom abroad treated or VAT purposes? 7

Invoices 7

What do I have to show on a tax invoice? 7

Can I issue invoices electronically? 10

Is it possible to operate sel-billing? 10

Transers o Business 11

Is there a relie rom VAT or the sale o a

business as a going concern? 11

Options to Tax 11

Are there any options to tax transactions? 11

Head Ofce and Branch Transactions 11

How are transactions between head oceand branch treated? 11

Bad Debt 12

Am I able to claim relie or bad debts? 12

Anti-Avoidance 12

Is there a general anti-avoidance provision

under VAT law? 12

Penalty Regime 13

What is the penalty and interest regime like? 13

All inormation refected in this document was obtained/summarized rom KPMG in Brazil as o October 2011.



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2 | Brazil: Country VAT/GST Essentials

Scope and Rates

What supplies are liable to VAT?

There are two value-added taxes in Brazil. One is a state

sales tax (Imposto sobre Circulao de Mercadorias e

Servios [ICMS]) and the other is a ederal excise tax

(Imposto sobre Produtos industrializados [IPI]).

ICMS is due on the physical movement o merchandise.

The ICMS is also levied on inter-state and inter-municipal

transport services, communications and electricity.

IPI excise tax is due, with a ew exceptions, on all goodsimported or manuactured in Brazil.

The tax is paid upon import or on the manuacture o a

product. Credit is given with respect to the IPI tax paid on

the raw materials or component parts used in the nished

product or consumed in production. The dierence in IPI

must also be paid i the goods or products are:

imported and sold at a higher price by the importer to a

domestic purchaser;

repackaged or sale at a higher price;

sold at a higher price by the producer or manuacturerthrough a branch; or

sold through exclusive distributors, a joint venture, or

through an aliated concern.

Furthermore, there are other taxes that are due on supply

o goods or services: services tax (Imposto Sobre Servios

[ISS]), Social Contribution on Billing (Contribuio para

o Financiamento da Seguridade Social [COFINS]) and

Contribution to the Social Integration Programme (Programa

de Integrao Social [PIS]).

ISS is a municipal tax on gross billings or services.

Services subject to the ISS are dened by ederal law. Eachmunicipality (city) must have its own list o taxed services.

The COFINS is described as a social contribution and is

targeted or unding o social welare programs. The COFINS

is charged on gross receipts rom supply o goods and

services.

The PIS was created to und the unemployment insurance

program. The COFINS is charged on gross receipts rom

supply o goods and services.

What is the standard rate o VAT?

The standard rates o VAT are:

ICMS

The standard rate o ICMS is 17 percent. However, in

So Paulo, Minas Gerais and Paran the standard rate is

18 percent and Rio de Janeiro is 19 percent. On inter-state

movements o goods, the rate applied may vary based

on the state o destination.

IPI

The tax is normally charged on an ad valorem rate

according to the classication o the product based upon

the international Harmonized Commodity Description and

Coding System (HS), administered by the World Customs

Organization in Brussels. Rates range rom zero to a

maximum o 330 percent and average about 10 percent.

Luxury goods are at the high end o the tax scale.

ISS

The standard rate o ISS is 5 percent, although there are

lower rates or specic services. However, rates may varyrom one municipality to another.

PIS and COFINS

The standard rates o PIS and COFINS are 1.65 percent and

7.6 percent, respectively.



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Brazil: Country VAT/GST Essentials | 3

Are there any reduced rates, zero rates, or exemptions?

Yes.

ICMS Tax on the circulation o goods and transportation

and communication services

There is a lower, 12 percent ICMS rate levied on some

specic goods and services, including:

arm implements and tractors, machines, industrial

devices and equipment and products rom the electronic

data processing industry, which have been granted some

incentives

diesel oil and hydrated ethyl alcohol uel

motor vehicles

sand and stones

ood products

transport services.

There is a lower, 7 percent ICMS rate levied on some

specic goods and services, including:

products that are part o the basic ood basket

products rom the electronic data processing industry.

There is an extensive list o exemptions, including:

exporting

books, newspapers, periodicals, and the paper

consumed in the printing o such products

sale o xed assets

ruits, vegetables, and arm/garden produce

preservatives.

IPI Tax on Industrialized Products

There is an extensive list o products which are tax exempt

or on which the tax rate is zero, including:

live animals and animal products

plant products

animal and plant at or oil

chemical products

textile products

shoes.

There is a list o exemptions, which includes:

ree samples, with no commercial value

vessels, except sporting or pleasure boats

exports

books, newspapers, periodicals, and paper consumed in

the printing o such products

electric energy, petroleum products, uel and minerals

belonging to the country

gold, when seen as a liquid asset.

ISS Tax on Services

The ollowing services are exempt rom ISS:

service exports

services rendered through an employment relationship,

reelances, directors and members o the advisory or

scal boards o partnerships and oundations, as well as

managing partners and delegate managers

amounts intermediated in the bonds and securitiesmarket, the amount o bank deposits, the capital,

interests and deault interests regarding credit

operations perormed by nancial institutions.



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PIS (Social Integration Tax) and COFINS (Social

Contribution Tax)

There is a lower rate o 0.65 percent or PIS and 3 percent

or COFINS ICMS or specic goods and services, including:

telecommunication services

passenger transportation services by road, underground,

railway or water

air passenger transportation services rendered by

companies licensed to operate on domestic fights and

those resulting rom the rendering o air passenger

transportation services by air taxi companies

services related to early childhood, elementary,

secondary, and college education

sale o used cars.

There is a list o exemptions which includes:

exportation o goods

exportation o services with payment in convertible

currency

sales o products to a commercial export company or

export purpose specically

sales o xed assets.

Registration

Who is required to register or Brazilian VAT?

Brazilian Entities

I a business makes supplies o goods and services that

are subject to IPI, ICMS, ISS, PIS, or COFINS in Brazil,

registration is compulsory. There is no threshold below which

a business is not required to account or these taxes.

Businesses are required to separately register or ICMS

in each state and ISS in each city where it has any kind o

establishment.

Non-Brazilian Entities

Foreign businesses are able to register or IPI, ICMS,

ISS, PIS, and COFINS only i they have a permanent

establishment in Brazil and they perorm taxable transactions

in the country. This will most likely give rise to corporate

income and other local tax liabilities in Brazil.

Are there penalties or not registering or late

registration?

ICMS

The penalty or ailure to register a scal document, provided

the operation has been perormed in a legal manner and

the tax duly withheld is BRL119.04 per month o operation,

without prejudice to all other applicable penalties.

ISS

The penalty or ailure to register or the ISS is BRL750 in

So Paulo city. The penalty may vary rom one municipality to

another.

Are there any simplifcations that could avoid the needor an overseas company to register or VAT?

Foreign companies that operate in Brazil are subject to the

same legal requirements that the domestic companies are,

assuming that they have established a permanent business

in the country.



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VAT Grouping

Is VAT grouping possible?

VAT grouping is possible only or the purposes o calculating

and withholding contributions or PIS/COFINS.

Regarding ICMS, IPI, and ISS, it is not possible to have VAT

grouping in cases o distinct companies or corporate entities.

Each establishment (belonging to the same company)

must calculate and withhold the above-mentioned taxes

consolidated calculations are not allowed.

Some States o Brazil allow establishments located inthe same State and under the same corporate entity, to

centralize the calculation o ICMS.

Can an overseas company be included in a VAT group?

In Brazil, entities belonging to the same economic group but

with distinct corporate identities are not allowed to calculate

their taxes jointly.

Returns

How requently are VAT returns submitted?

For each tax there is a specic requirement, set orth by the

applicable legislation.

ICMS: (GIA) Inormation and Calculation orm monthly

ISS: Declarao Eletrnica de Servios (DES) Electronic

Statement o Services monthly

IPI/PIS/COFINS: Declarao de Dbitos e Crditos

Tributrios Federais (DCTF) Federal contributions and

taxes statement monthly

PIS/COFINS: Demonstrativo de Apurao das

Contribuies Sociais (DACON) Demonstrative o

Calculation os Social Contributions monthly

Are there any other returns that need to be submitted?

Whenever interstate operations involving goods and services

take place, the tax authorities o the receiving state require

that the sender o such goods or the services rendered send,

on a monthly basis, electronic les containing inormation

regarding the operations perormed with that state.

A selection o some specic industries, have their ling more

closely scrutinized by the tax authorities.



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VAT Recovery

Can I recover VAT i I am not registered?

No.

Only those taxpayers who duly ulll the conditions

established by the law can benet rom tax credits. They

originate a right to credit, once they are non-cumulative

taxes. Thereore, they allow the oset o what is owed rom

each operation or installment with what has been previously

levied, in regards to the infow o goods or services,

accompanied by the appropriate scal document, issued

by a taxpayer in good standing beore the tax authorities.This rule does not apply to ISS.

Does your country apply reciprocity rules or reclaims

submitted by non-established businesses?

N/A

Are there any items that you cannot recover VAT on?

As general rule, it is possible to say that goods, services or

products do not generate a right to a credit at the time o

their infow i their outfow was tax exempt.

However, the legislation establishes exceptions to the

ollowing taxes:

ICMS:

When the goods or services coming in are:

unrelated to the company business

or integration in a product or use in a process o

industrialization or rural production o a product where

outfow is not taxed or is tax exempt

or commercialization or service rendering, when the

outfow or the service that ollows is not taxed or is tax

exempt

or use or consumption o the company itsel - understood

as goods that are not or commercialization or that are

not used as part o a product or or consumption in its

respective process o industrialization or rural production,

or in service rendering that is subject to tax.

IPI:

As a general rule, the infow o raw materials that are

intended or the industrial process, generates a right

to a credit.

PIS/COFINS:

In general, the infow o goods or services intended

or the industrialization and goods or resale generates

a right to a credit.



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International Supplies o Goods and Services

How are exports o goods and services treated?

Goods

The Brazilian Federal Constitution establishes that goods

intended or export have tax immunity.

Services

The Brazilian Federal Constitution establishes that services

intended or export have tax immunity.

How are goods dealt with on importation?

As a rule, import operations are subject to the ollowing

taxes: II (import duty), ICMS, IPI, PIS/COFINS.

Except or the import duty and ISS, all other taxes are non-

cumulative, that is, they do not generate a right to a credit.

The right to tax credits ollows the same rules applied on the

acquisition o assets carried out within the country and, as

a rule, goods or production or resale generate a credit right

derived rom those taxes.

How are services which are brought in rom abroadtreated or VAT purposes?

On importing o services, ISS, PIS and COFINS are paid.

This taxation is relatively recent. In act, ISS on importation

o services was established when the Complementary

Law 116/03 came into eect and, soon ater that, upon the

publication o the Ordinary Law 10.865/04, PIS and COFINS

also started to be levied on the importation o services.

There is no credit o ISS, considering that such tax is

cumulative. The contributions or PIS and COFINS levied on

the importation o services can be recovered, provided theservice imported is applied directly on industrial processes.

Invoices

What do I have to show on a tax invoice?

I you have to issue a tax invoice it should contain the

ollowing data:

In the Issuing box

the name or corporate name

the address

the city

the state or territory

the telephone and ax numbers and/or e-mail

the zip code

the corporate Taxpayer Registry enrollment number with

the Ministry o Finance

the kind o operation resulting rom the infow, such

as: sale, transer, return, shipping (or the purpose o

demonstration, industrialization, or other)

the CFOP code Fiscal Code on Operations and

Transactions

the state registration number

the denomination invoice

the kind o operation infow or outfow

the serial number o the Invoice and, immediately below

it, the expression Series, when applicable, ollowed by

the corresponding number

the number and destination o each copy o the Invoice

in the eld provided or indicating the deadline or the

issuance o the Invoice, 00.00.00

the day o issuance o the Invoice

the day in which the good eectively let the company

the time in which the good eectively let the company.



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In the box Receiver/Sender

the name or corporate name

the Corporate Taxpayer Registry enrolment number or

the Individual Taxpayer Registry enrolment number with

the Finance Ministry

the address

the zip code

the city

the telephone and ax numbers and/or e-mail

the state or territory

the state registration number.

In the box Fatura, when adopted by the sender: the

inormation established by the applicable legislation,

In the box Information of the Product

the code adopted by the establishment or product

identication purposes

the description o the products, including: name, brand,

type, model, series, kind, quality, and other inormation

that allow or their perect identication

the scal classication o the products, whenever

required by the legislation regarding IPI Tax on

Industrialized Products

the Cdigo de Situao Tributria CST Code o the Tax

Status

the unit o measurement used or quantiying the

products

the amount o products

the unit cost o the products

the total value o the products

the ICMS rate

the IPI rate, when applicable.

In the box Tax Calculation

the tax basis or calculation o ICMS

the amount o ICMS levied on the operation

the tax calculation basis used on assessing the amount

o ICMS withheld or tax withholding,

the amount o ICMS withheld or tax withholding,

the total value o the products

the reight cost

the insurance cost

the cost o other additional expenses

the total amount o IPI, when applicable

the total value o the invoice.



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In the box Carrier/Volumes Transported

the name or corporate name o the carrier or the

expression Sel-employed, when applicable

the reight payment condition i at the senders or

receivers expenses

the vehicle license plate number in case o road

transportation, or other indicative inormation, in case o

other means o transportation

the state or territory in which the vehicle is registered

the carriers Corporate Taxpayer Registry enrollment

number or the Individual Taxpayer Registry enrolment

number with the Finance Ministry

the address o the carrier

the City o carrier

the state or territory in which the carrier is domiciled

the state registration number o the carrier, when

applicable

the number o volumes transported

the kind o volumes transported

the brand o the volumes transported

the numerical sequence o the volumes transported

the gross weight o the volumes transported

the net weight o the volumes transported.

In the box Additional Information

in the eld Additional Inormation other inormation

that matters to the sender, such as: number o the order,

seller, issuer o the Invoice, place o delivery when

dierent rom the receivers address in accordance

with what is established in the applicable legislation,

advertising, etc.

in the eld For the Tax Authorities leave it blank, and in

case o a establishment located in the city o So Paulo,

the code o the tax department to which it is related with

clear indication o the expression Cdigo do Posto FiscalTax Service Oce

the control number o the orm, in case o an Invoice

issued through electronic data processing.

In the ootnote or on the right side o the Invoice, the name,

address, state registration, and Corporate Taxpayer Registry

enrollment numbers with the Finance Ministry o the printer

o the scal document; the date and amount o documents

printed; the serial number o the rst and last document

printed and their respective series, when applicable, and the

number o its authorization or printing scal documents.

In the product delivery receipt, that shall be part o the

original Invoice as a detachable slip, there should be:

the acknowledgment that the products have been

delivered

date in which the products were delivered

identication and signature o the receiver o the

products

the denomination Invoice

serial number o the Invoice.



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Can I issue invoices electronically?

The invoices may be issued through electronic data

processing, under the terms and conditions established

by the state tax authorities. However, even having their

issuance done by electronic data processing, the invoices

must be printed and be sent in hard copy together with the

merchandise.

The ICMS taxpayers (registered as a commercial or industrial

company, exporter and/or importer) should submit, in digital

les, inormation regarding the operations and servicerendering carried out, under the terms established by the

state tax authorities.

Is it possible to operate sel-billing?

As a rule, sel billing is not allowed. Only under specic

conditions, established in the legislation, can sel-billing be

perormed at the moment the good or service eectively

enters the establishment, in a real or symbolic sense:

new or used, sent or whatever reason by a producer

or individual or company not required to issue scal

documents

in return, when sent by a sel-employed or reelanceproessional to which such product had been sent or

manuacturing purposes

in return rom exposition or air, to which it had been

sent exclusively or the purpose o public exhibition

in return o shipment or sale outside the establishment

in return, when undelivered to receiver

imported directly rom abroad

successully bided or or bought in auction or biddings,

promoted by Public Authorities.



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Transers o Business

Is there a relie rom VAT or the sale o a business as a

going concern?

Yes. I you sell your business while it is in operation, then

VAT cannot be levied. However, it is a requirement or this

benet, that the company is sold with all its assets and

inventory, without any moving o such assets, otherwise

taxes shall be levied.

Options to Tax

Are there any options to tax transactions?

No.

Head Ofce and Branch Transactions

How are transactions between head ofce and branch

treated?

ICMS is levied on operations involving asset transerring

rom headquarters to branches, once the trigger actor

is the circulation o goods. IPI is levied in case the good

is industrialized. However, or this kind o operation, the

legislation allows the suspension o payment o the IPI.

PIS and COFINS are not levied, as there is no revenue

coming rom the sale o assets or services resulting rom

this operation. Thereore, there is no triggering event orthese taxes.

ISS is not levied, as there is no billing o services between

headquarters and branch, considering that the triggering

event or this tax is the rendering o remunerated services.



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Bad Debt

Am I able to claim relie or bad debts?

Under the Brazilian legislation there is no relation between

payment resulting rom a commercial transaction and

payment o taxes. A tax is levied on the perormance o the

operation, independently rom the achievement o nancial

return. Even i the company is not able to recover all its debts

related to the sale o goods or services, the legislation does

not provide any benets related to unrecoverable debts.

Anti-Avoidance

Is there a general anti-avoidance provision under

VAT law?

Yes. The Complementary Law 104 dated 10 January 2001,

has added a single paragraph to article 116 o the Brazilian

Tax Code (CTN), introducing, or tax purposes, the possibility

o subjective interpretation o judicial acts, by the tax

authorities. Consequently compliance to the law is not

enough. What it is argued is i a specic operation could

be generating a lower taxation.

The above-mentioned concept addresses the disregard tojudicial acts when perormed with the purpose o concealing

the occurrence o a tax-triggering event, and thereore, a

perectly legal act could be considered nil.



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Penalty Regime

What is the penalty and interest regime like?

There are several ways o penalizing companies who

have ailed to ulll their obligations, either main or

ancillary obligations.

Accessory obligations are those that result rom the main

one and whose non-ulllment does not aect the latter.

The penalties established by law range rom BRL 20 to

150 percent o the total value o the operations that have

ailed to be taxed, with the addition o monthly deaultinterests charged on the amount o the debt, in case o non

payment o taxes.

In this sense, or each ailure o meeting an obligation there

is a specic penalty.



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The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual

or entity. Although we endeavor to provide accurate and timely inormation, there can be no guarantee that such inormation is

accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation

without appropriate proessional advice ater a thorough examination o the particular situation.

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent

rms are aliated with KPMG International. KPMG International provides no client services. No member rm has any authority to

obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMG International have any such

authority to obligate or bind any member rm. All rights reserved.

The KPMG name, logo and cutting through complexity are registered trademarks or trademarks o KPMG International.

Designed by Evalueserve.

Publication name: Brazil Country VAT/GST Essentials

Publicat ion number: 111202

P bli ti d t J 2012

www.kpmg.com
http://www.kpmg.com/http://www.kpmg.com/

brazil 2011 vat gst

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