Brazil 2011 Vat GST

GLOBAL INDIRECT TAX
Brazil
Country VAT/GST Essentials kpmg.com
TAX
b | Brazil: Country VAT/GST Essentials
2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Brazil:
Contents
Scope and Rates What supplies are liable to VAT?
Country VAT/GST Essentials
2 2 2 3 4 4 4 4 5 5 5 5 5 5 6 6 6 6 7 7 7 7
Invoices What do I have to show on a tax invoice? Can I issue invoices electronically? Is it possible to operate self-billing? Transfers of Business Is there a relief from VAT for the sale of a business as a going concern? Options to Tax Are there any options to tax transactions? Head Office and Branch Transactions How are transactions between head office and branch treated? Bad Debt Am I able to claim relief for bad debts? Anti-Avoidance Is there a general anti-avoidance provision under VAT law? Penalty Regime What is the penalty and interest regime like?
7 7 10 10 11 11 11 11 11 11 12 12 12 12 13 13
What is the standard rate of VAT? Are there any reduced rates, zero rates, or exemptions? Registration Who is required to register for Brazilian VAT? Are there penalties for not registering or late registration? Are there any simplifications that could avoid the need for an overseas company to register for VAT? VAT Grouping Is VAT grouping possible? Can an overseas company be included in a VAT group? Returns How frequently are VAT returns submitted? Are there any other returns that need to be submitted? VAT Recovery Can I recover VAT if I am not registered? Does your country apply reciprocity rules for reclaims submitted by non-established businesses? Are there any items that you cannot recover VAT on? International Supplies of Goods and Services How are exports of goods and services treated? How are goods dealt with on importation? How are services which are brought in from abroad treated for VAT purposes?
All information reflected in this document was obtained/summarized from KPMG in Brazil as of October 2011.
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 federal excise tax (Imposto sobre Produtos industrializados [IPI]). ICMS is due on the physical movement of merchandise. The ICMS is also levied on inter-state and inter-municipal transport services, communications and electricity. IPI excise tax is due, with a few exceptions, on all goods imported or manufactured in Brazil. The tax is paid upon import or on the manufacture of a product. Credit is given with respect to the IPI tax paid on the raw materials or component parts used in the finished product or consumed in production. The difference in IPI must also be paid if the goods or products are: imported and sold at a higher price by the importer to a domestic purchaser; repackaged for sale at a higher price; sold at a higher price by the producer or manufacturer through a branch; or sold through exclusive distributors, a joint venture, or through an affiliated concern. What is the standard rate of VAT? The standard rates of VAT are: ICMS The standard rate of 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 of goods, the rate applied may vary based on the state of destination. IPI The tax is normally charged on an ad valorem rate according to the classification of the product based upon the international Harmonized Commodity Description and Coding System (HS), administered by the World Customs Organization in Brussels. Rates range from zero to a maximum of 330 percent and average about 10 percent. Luxury goods are at the high end of the tax scale. ISS The standard rate of ISS is 5 percent, although there are lower rates for specific services. However, rates may vary from one municipality to another. PIS and COFINS The standard rates of PIS and COFINS are 1.65 percent and 7 percent, respectively. .6
Furthermore, there are other taxes that are due on supply of 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 for services. Services subject to the ISS are defined by federal law. Each municipality (city) must have its own list of taxed services. The COFINS is described as a social contribution and is targeted for funding of social welfare programs. The COFINS is charged on gross receipts from supply of goods and services. The PIS was created to fund the unemployment insurance program. The COFINS is charged on gross receipts from supply of goods and services.
Brazil: Country VAT/GST Essentials | 3
Are there any reduced rates, zero rates, or exemptions? Yes. ICMS Tax on the circulation of goods and transportation and communication services There is a lower, 12 percent ICMS rate levied on some specific goods and services, including: farm implements and tractors, machines, industrial devices and equipment and products from the electronic data processing industry, which have been granted some incentives diesel oil and hydrated ethyl alcohol fuel motor vehicles sand and stones food products transport services.
IPI Tax on Industrialized Products There is an extensive list of products which are tax exempt or on which the tax rate is zero, including: live animals and animal products plant products animal and plant fat or oil chemical products textile products shoes.
There is a list of exemptions, which includes: free samples, with no commercial value vessels, except sporting or pleasure boats exports books, newspapers, periodicals, and paper consumed in the printing of such products electric energy, petroleum products, fuel and minerals belonging to the country gold, when seen as a liquid asset.
There is a lower, 7 percent ICMS rate levied on some specific goods and services, including: products that are part of the basic food basket products from the electronic data processing industry.
There is an extensive list of exemptions, including: exporting books, newspapers, periodicals, and the paper consumed in the printing of such products sale of fixed assets fruits, vegetables, and farm/garden produce preservatives.
ISS Tax on Services The following services are exempt from ISS: service exports services rendered through an employment relationship, freelances, directors and members of the advisory or fiscal boards of partnerships and foundations, as well as managing partners and delegate managers amounts intermediated in the bonds and securities market, the amount of bank deposits, the capital, interests and default interests regarding credit operations performed by financial institutions.
Registration
PIS (Social Integration Tax) and COFINS (Social Contribution Tax) There is a lower rate of 0.65 percent for PIS and 3 percent for COFINS ICMS for specific 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 flights and those resulting from the rendering of air passenger transportation services by air taxi companies services related to early childhood, elementary, secondary, and college education sale of used cars. Who is required to register for Brazilian VAT? Brazilian Entities If a business makes supplies of 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 for these taxes. Businesses are required to separately register for ICMS in each state and ISS in each city where it has any kind of establishment. Non-Brazilian Entities Foreign businesses are able to register for IPI, ICMS, ISS, PIS, and COFINS only if they have a permanent establishment in Brazil and they perform taxable transactions in the country. This will most likely give rise to corporate income and other local tax liabilities in Brazil. Are there penalties for not registering or late registration? ICMS The penalty for failure to register a fiscal document, provided the operation has been performed in a legal manner and the tax duly withheld is BRL119.04 per month of operation, without prejudice to all other applicable penalties. ISS The penalty for failure to register for the ISS is BRL750 in So Paulo city. The penalty may vary from one municipality to another. Are there any simplifications that could avoid the need for an overseas company to register for 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.
There is a list of exemptions which includes: exportation of goods exportation of services with payment in convertible currency sales of products to a commercial export company for export purpose specifically sales of fixed assets.
VAT Grouping
Is VAT grouping possible? VAT grouping is possible only for the purposes of calculating and withholding contributions for PIS/COFINS. Regarding ICMS, IPI, and ISS, it is not possible to have VAT grouping in cases of 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 of Brazil allow establishments located in the same State and under the same corporate entity, to centralize the calculation of 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 frequently are VAT returns submitted? For each tax there is a specific requirement, set forth by the applicable legislation. ICMS: (GIA) Information and Calculation form monthly ISS: Declarao Eletrnica de Servios (DES) Electronic Statement of 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 of 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 of the receiving state require that the sender of such goods or the services rendered send, on a monthly basis, electronic files containing information regarding the operations performed with that state. A selection of some specific industries, have their filing more closely scrutinized by the tax authorities.
VAT Recovery
Can I recover VAT if I am not registered? No. Only those taxpayers who duly fulfill the conditions established by the law can benefit from tax credits. They originate a right to credit, once they are non-cumulative taxes. Therefore, they allow the offset of what is owed from each operation or installment with what has been previously levied, in regards to the inflow of goods or services, accompanied by the appropriate fiscal document, issued by a taxpayer in good standing before the tax authorities. This rule does not apply to ISS. Does your country apply reciprocity rules for 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 of their inflow if their outflow was tax exempt. However, the legislation establishes exceptions to the following taxes: ICMS: When the goods or services coming in are: unrelated to the company business for integration in a product or use in a process of industrialization or rural production of a product where outflow is not taxed or is tax exempt for commercialization or service rendering, when the outflow or the service that follows is not taxed or is tax exempt for use or consumption of the company itself - understood as goods that are not for commercialization or that are not used as part of a product or for consumption in its respective process of industrialization or rural production, or in service rendering that is subject to tax.
IPI: As a general rule, the inflow of raw materials that are intended for the industrial process, generates a right to a credit. PIS/COFINS: In general, the inflow of goods or services intended for the industrialization and goods for resale generates a right to a credit.
International Supplies of Goods and Services

How are exports of goods and services treated? Goods The Brazilian Federal Constitution establishes that goods intended for export have tax immunity. Services The Brazilian Federal Constitution establishes that services intended for export have tax immunity. How are goods dealt with on importation? As a rule, import operations are subject to the following taxes: II (import duty), ICMS, IPI, PIS/COFINS. Except for the import duty and ISS, all other taxes are noncumulative, that is, they do not generate a right to a credit. The right to tax credits follows the same rules applied on the acquisition of assets carried out within the country and, as a rule, goods for production or resale generate a credit right derived from those taxes. How are services which are brought in from abroad treated for VAT purposes? On importing of services, ISS, PIS and COFINS are paid. This taxation is relatively recent. In fact, ISS on importation of services was established when the Complementary Law 116/03 came into effect and, soon after that, upon the publication of the Ordinary Law 10.865/04, PIS and COFINS also started to be levied on the importation of services. There is no credit of ISS, considering that such tax is cumulative. The contributions for PIS and COFINS levied on the importation of services can be recovered, provided the service imported is applied directly on industrial processes.
Invoices
What do I have to show on a tax invoice? If you have to issue a tax invoice it should contain the following data: In the Issuing box the name or corporate name the address the city the state or territory the telephone and fax numbers and/or e-mail the zip code the corporate Taxpayer Registry enrollment number with the Ministry of Finance the kind of operation resulting from the inflow, such as: sale, transfer, return, shipping (for the purpose of demonstration, industrialization, or other) the CFOP code Fiscal Code on Operations and Transactions the state registration number the denomination invoice the kind of operation inflow or outflow the serial number of the Invoice and, immediately below it, the expression Series, when applicable, followed by the corresponding number the number and destination of each copy of the Invoice in the field provided for indicating the deadline for the issuance of the Invoice, 00.00.00 the day of issuance of the Invoice the day in which the good effectively left the company the time in which the good effectively left the company.
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 fax numbers and/or e-mail the state or territory the state registration number.
In the box Tax Calculation the tax basis for calculation of ICMS the amount of ICMS levied on the operation the tax calculation basis used on assessing the amount of ICMS withheld for tax withholding, the amount of ICMS withheld for tax withholding, the total value of the products the freight cost the insurance cost the cost of other additional expenses the total amount of IPI, when applicable the total value of the invoice.
In the box Fatura, when adopted by the sender: the information established by the applicable legislation, In the box Information of the Product the code adopted by the establishment for product identification purposes the description of the products, including: name, brand, type, model, series, kind, quality, and other information that allow for their perfect identification the fiscal classification of the products, whenever required by the legislation regarding IPI Tax on Industrialized Products the Cdigo de Situao Tributria CST Code of the Tax Status the unit of measurement used for quantifying the products the amount of products the unit cost of the products the total value of the products the ICMS rate the IPI rate, when applicable.
In the box Carrier/Volumes Transported the name or corporate name of the carrier or the expression Self-employed when applicable , the freight payment condition if at the senders or receivers expenses the vehicle license plate number in case of road transportation, or other indicative information, in case of other means of 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 of the carrier the City of carrier the state or territory in which the carrier is domiciled the state registration number of the carrier, when applicable the number of volumes transported the kind of volumes transported the brand of the volumes transported the numerical sequence of the volumes transported the gross weight of the volumes transported the net weight of the volumes transported.
In the box Additional Information in the field Additional Information other information that matters to the sender, such as: number of the order, seller, issuer of the Invoice, place of delivery when different from the receivers address in accordance with what is established in the applicable legislation, advertising, etc. in the field For the Tax Authorities leave it blank, and in case of a establishment located in the city of So Paulo, the code of the tax department to which it is related with clear indication of the expression Cdigo do Posto Fiscal Tax Service Office the control number of the form, in case of an Invoice issued through electronic data processing.
In the footnote or on the right side of the Invoice, the name, address, state registration, and Corporate Taxpayer Registry enrollment numbers with the Finance Ministry of the printer of the fiscal document; the date and amount of documents printed; the serial number of the first and last document printed and their respective series, when applicable, and the number of its authorization for printing fiscal documents. In the product delivery receipt, that shall be part of 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 identification and signature of the receiver of the products the denomination Invoice serial number of the Invoice.
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 files, information regarding the operations and service rendering carried out, under the terms established by the state tax authorities.
Is it possible to operate self-billing? As a rule, self billing is not allowed. Only under specific conditions, established in the legislation, can self-billing be performed at the moment the good or service effectively enters the establishment, in a real or symbolic sense: new or used, sent for whatever reason by a producer or individual or company not required to issue fiscal documents in return, when sent by a self-employed or freelance professional to which such product had been sent for manufacturing purposes in return from exposition or fair, to which it had been sent exclusively for the purpose of public exhibition in return of shipment for sale outside the establishment in return, when undelivered to receiver imported directly from abroad successfully bided for or bought in auction or biddings, promoted by Public Authorities.
Transfers of Business
Is there a relief from VAT for the sale of a business as a going concern? Yes. If you sell your business while it is in operation, then VAT cannot be levied. However, it is a requirement for this benefit, that the company is sold with all its assets and inventory, without any moving of such assets, otherwise taxes shall be levied.
Head Office and Branch Transactions

How are transactions between head office and branch treated? ICMS is levied on operations involving asset transferring from headquarters to branches, once the trigger factor is the circulation of goods. IPI is levied in case the good is industrialized. However, for this kind of operation, the legislation allows the suspension of payment of the IPI. PIS and COFINS are not levied, as there is no revenue coming from the sale of assets or services resulting from this operation. Therefore, there is no triggering event for these taxes. ISS is not levied, as there is no billing of services between headquarters and branch, considering that the triggering event for this tax is the rendering of remunerated services.
Options to Tax
Are there any options to tax transactions? No.
Bad Debt
Am I able to claim relief for bad debts? Under the Brazilian legislation there is no relation between payment resulting from a commercial transaction and payment of taxes. A tax is levied on the performance of the operation, independently from the achievement of financial return. Even if the company is not able to recover all its debts related to the sale of goods or services, the legislation does not provide any benefits 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 of the Brazilian Tax Code (CTN), introducing, for tax purposes, the possibility of subjective interpretation of judicial acts, by the tax authorities. Consequently compliance to the law is not enough. What it is argued is if a specific operation could be generating a lower taxation. The above-mentioned concept addresses the disregard to judicial acts when performed with the purpose of concealing the occurrence of a tax-triggering event, and therefore, a perfectly legal act could be considered nil.
Penalty Regime
What is the penalty and interest regime like? There are several ways of penalizing companies who have failed to fulfill their obligations, either main or ancillary obligations. Accessory obligations are those that result from the main one and whose non-fulfillment does not affect the latter. The penalties established by law range from BRL 20 to 150 percent of the total value of the operations that have failed to be taxed, with the addition of monthly default interests charged on the amount of the debt, in case of non payment of taxes. In this sense, for each failure of meeting an obligation there is a specific penalty.
www.kpmg.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Brazil Country VAT/GST Essentials Publication number: 111202 Publication date: January 2012

Brazil 2011 Vat GST

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Brazil 2011 Vat GST

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GLOBAL INDIRECT TAX

b | Brazil: Country VAT/GST Essentials

Country VAT/GST Essentials

2 | Brazil: Country VAT/GST Essentials

Scope and Rates

Brazil: Country VAT/GST Essentials | 3

4 | Brazil: Country VAT/GST Essentials

Brazil: Country VAT/GST Essentials | 5

6 | Brazil: Country VAT/GST Essentials

Brazil: Country VAT/GST Essentials | 7

International Supplies of Goods and Services

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10 | Brazil: Country VAT/GST Essentials

Brazil: Country VAT/GST Essentials | 11

Head Office and Branch Transactions

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