Cost of Importing Services to Brazil
This article will give you a better understanding of what costs are involved when importing a service to Brazil.
Unlike when importing goods there is no need for an import license from Siscomex to import services to Brazil. Many of the the services imported to Brazil these days are related to technology products like:
- Software as a Service
- Remote IT Assistance
- Outsourced Development
- Online Training and Courses
The Brazilian government have increased the tax burden on import of services over the last years but have left special incentives for import of services that are classified as a technology transfer and not a regular commercial transaction.
For the purpose of this article we do not take special regulation for technology transfer into account as such special conditions normally do not apply for regular commercial transaction.
Ultimately, the import tax is paid by the importer of the service.
When the service is paid through a regular bank transfer from a Brazilian bank account, the Brazilian party will have to demonstrate a taxation document named DARF (Documento de Arrecadação de Receitas Federais – or Document for Receipt of Collection of Federal Income) and a tax payment confirmation before the money is released out of the country.
If the Brazilian party chooses to pay for the service using a credit card or other payment method not directly controlled by Banco Central, the DARF document and tax payment are still required in order to document trace of the money.
What Taxes Apply To?
When calculating the cost of importing a service to Brazil, there arefive different types of taxes that apply.
- Imposto de Renda Retido na Fonte - IRRF
- Imposto Sobre Serviços - ISS
- Programa de Integração Social - PIS
- Contribuição para o Financiamento da Seguridade Social - COFINS
- Contribuição de Intervenção no Domínio Econômico - CIDE
The nature of these taxes rate for some of these taxes vary depending on several factors.
- IRRF - Depends on tax scheme of the company that import (average 15%)
- ISS - Depends on the service type (average 5%)
- PIS - 1.65%
- COFINS - 7.60%
- CIDE - 10.00%
Imposto de Renda Retido na Fonte
IRRF is the Portuguese abbreviation for Income Tax Withheld at Source. For most companies it corresponds to 15% of the values paid, credited, delivered, used or sent abroad through the acquisition or payment of any heading.
Imposto Sobre Serviços
The ISS Services Tax applies to services that come from or that have started abroad. Therefore, every time a contract is signed with companies abroad and the service is provided, the Brazilian contract party will be liable to taxation, regardless the actual payment.
The value charged varies according to the municipality, so it is important to check the ISS legislation of the municipality where the company is located.
Contribuição de Intervenção no Domínio Econômico
This legislation determines the application of 10% over the following consignments:
- Legal entities that own use license of technological knowledge, as well as those signatory contracts that imply technology transfers signed with individuals resident or domiciled abroad.
- Legal entity that owns technical services contracts, administrative assistance and similar contracts to be provided by individuals resident or domiciled abroad, and also by legal entities that pay, credit, deliver, use or send royalties, to any heading, to beneficiaries residing or domiciled abroad.
To exactly calculate the import tax of service to Brazil is a more complicated matter as there are conflicting guidelines from the Brazilian government. Because all the taxes apart from the CIDE are calculated based on different definitions of Gross Service Value it is not as simple as adding all the tax rates to get the the total tax payable tax.
As simplified calculation with IRRF of 15% and ISS of 5% can look like this:
|Net Service Value||-||BRL 10.000|
|IRRF + ISS||Gross Service Value |
including IRRF + ISS
|PIS + COFINS||Gross Service Value |
including IRRF + ISS + PIS + COFINS
|CIDE||GNet Service Value||BRL 1.000|
We emphasize that this is a simplified calculation and a qualified accountant have to do the exact calculation based on the service that is imported and the conditions the importing company is operating under.
Depending on how the service is being consumed or distributed in Brazil, PIS and COFINS taxes can be refunded. This refund is activated when the imported services are used as a component of another service or product resold in Brazil.
How to Reduce Taxation
There are many different strategies used to reduce taxation of services. Most of the strategies take advantage of the widely spread underground economy in Brazil and cannot be recommended.
A legitimate way of avoiding the direct tax burden is to have the Brazilian company open a subsidiary abroad preferably in a country were Brazil has a double taxation agreement.
Depending on the nature of the service the Brazilian party will be able to consume the service provided at a subsidiary located abroad without actually having to pay tax on the service delivered to Brazil.