Introduction to IRPJ
This article will give you a brief explanation of the highest tax paid by companies in Brazil. Understand how the lion (Brazilian Revenue symbol) takes its bites and why you should never urge its rage.
IRPJ is the abbreviation for Imposto de Renda sobre Pessoa Jurídica (Corporate Income Tax). Like CSLL, that we explained in another article, IRPJ is a corporate revenue tax that applies to the net profits of any legal entity in Brazil. IRPJ is a federal tax paid by public or private legal entities residing in Brazil, regardless on their purposes or nationality.
As the Brazilian tax legislation changes very often, it is highly recommended for companies to hire an accountant in order to avoid money loss and major problems with the Revenue.
How Much a Company Pays on IRPJ?
IRPJ is declared through a type approval modality. In the beginning of every year, tax payers prepare an annual adjustment declaration, related to the previous year's earnings. Then the values will pass through the Federal Revenue evaluation, to be approved or rejected. The whole process runs online.
In Brazil, the IRPJ taxation is progressive, which means that the more a company earns, the more it will pay. This way, the tax's aliquots are directly proportional to the tax payer's income and will be calculated over a basis. The tax calculation basis is 15% on the companies' earnings, plus a surtax of 10% (on annual income over BRL 240,000.00).
In order to organize it, the Federal Revenue releases annual progressive scales, determining the percentages to be calculated over the companies' income.
Another condition that determines how much companies will pay in IRPJ is the sector that they are engaged in. The aliquots can be different for each area.
How is IRPJ Collected?
According to its legal form and profitability, companies will pay IRPJ following those taxation arrangements, foreseen in the Brazilian tax legislation:
- Lucro Real
- Lucro Presumido
- Lucro Arbitrado
- Simples Nacional (Small businesses and mini or small sized companies must pay IRPJ and other tributes like CSLL, COFINS and PIS in an unified payment, according to the Simples Nacional law).
Corporate Tax deductions include:
- Losses (however, in the future, only 30% of any current year's taxable income can be written off as a loss)
- Depreciation is deducted using the straight line method
- Companies involved in technical research can use accelerated depreciation
- There is no company consolidation for tax purposes
- New capitalization rules (relating to interest expenses) took effect on January 1, 2010
Are you Afraid of the “Malha Fina”?
The term “malha fina” is widely used in Brazil when the subject is income statements. It refers to the Federal Revenue database system where the income declarations that presented inconsistencies are stored. This system crosses over information in order to find and avoid tax evasions.
Brazil is one of the countries that has the biggest amount of evaded money. According to the last study of Instituto Brasileiro de Planejamento Tributário (Brazilian Institute of Tax Plannings), the non-declared invoice reaches BRL 1,32 trillion.
Until last year, the Brazilian government has only done the “malha fina” on Individual Income Tax's declarations. Before, companies committing tax evasions were discovered only through complaints. However, the Federal Revenue announced that is finalizing the electronic system to oversee companies as well, which will be operating soon.
Even though Brazil shelters a truly culture of evasion, the government has very strict actions when the smarty ones are found. Once caught in the “malha fina” evaders will have a lot of headache. If companies are caught committing tax irregularities, such as over-invoicing, omission of earnings etc, they are notified to regularize its situation, giving back the withheld money with interests.
If not, they will suffer fiscal action, being finned up to 70% of the evaded value. Or, if indicted by public prosecutors, tax evasions can turn into crime against the tax system and the responsible people can end up in jail.