Tax planning is a large part of doing business in Brazil. Currently more than 90 taxes, contributions and duties are charged in the country. In this article we are going to look at the most important federal taxes and how they work.
ITR (Imposto Territorial Rural) is a rural land tax that applies to property located outside urban areas and is paid annually by the property owner. The rate depends on the location of the property and its size.
ITR works as support for public power in rural areas. Part of the revenue goes to the municipality and part to the state, in varying proportions.
After the 1990s the ITR increased for unproductive properties. This measure reduced speculation and abandoned properties. This is one of the reasons for the Brazilian agribusiness "boom" in the1990s.
The tax on rural territorial property is paid by every contributor, individual or legal entity who has rural property. Unlike other taxes like IPTU, in which the amount is estimated by the municipalities, for ITR it is the landowner who declares the value of the property in a form similar to the income tax form. It is up to the executive power to verify if the statement is reasonable or not.
Rate: From 0,03 % to 20%
Tax charged on financial transactions, such as currency exchange, insurance and operations involving credit. The main function of IOF is to control credit, foreign exchange, insurance and securities policies.
IOF is applied to:
- Transactions involving property assets when it is transferred, issued, paid or has the title rescued
- Foreign exchange transactions when it is paid or when made available to an interested party
- Insurance related operations, including contracting and receiving compensation
- Credit operations
The rates used can be fixed, variable, proportional, progressive or regressive. The basis for calculation depends on the operation, for example on foreign exchanges, it is based on the national currency. Transactions involving insurance base their IOF on the stock market.
In credit operations, it is paid by private individual and legal entities. The IOF calculated cannot exceed 1.5% per day. The current rate for transactions entered by individuals is 0.0082% per day, plus 0.38% of the debtor balances calculated on the last day of the month. For companies, transactions less than or equal to BRL 30,000.00, the aliquot is 0.00137% per day. For other companies, the rate is 0.00.41% per day plus the additional fixed rate of 0.38% on the debtor balances on the day of calculation.
Also in exchange operations involving foreign currency transactions and insurance operations it is paid by the insured legal entities and private individuals and for security operations, by those who acquired security and the financial institutions.
Rate: From 1% to 25%
Import Duty (II)
Imposto sobre a Importação, or simply II, is a tax that applies to the entry of foreign products to Brazil.
If the product was brought as luggage on an international flight, the rate is 50% of the exceeded value imposed by the exemption rate. In the case of imported foreign goods, the customs value is indicated in the Common External Tariff (TEC).
TEC establishes the absence of the Import Tax (zero rate) to trades between Mercosur members but when imports involves another country TEC is applied.
Rate: From 0% to 20%
Check out our tax index here.
Imposto sobre Produtos Industrializados or IPI, is applied on industrialized products.
The goods can be taxed when leaving the factory, during customs clearance or if the product is abandoned or confiscated and sold at auction. This tax is paid by the manufacturer or by the importer of the goods.
The rate used varies by product. Given products may either be exempt or have a rate above 300% for example the rate applied to products like cigarettes.
The basis of calculation depends on the transaction. In the case of sales within Brazil, the sale price is the basis of the tax calculation. In cases of imports, the basis of calculation is FOB plus the import tax and other required fees (freight, insurance, etc).
IRRF is the abbreviation for Imposto de Renda Retido na Fonte and corresponds to the income tax withheld at source.
It applies to labor income, capital income, remittances abroad and other income such as prizes, advertising services provided by legal entities and remuneration for services provided by legal entities.
Subject to tax at source are the following:
- Employers paid by individuals or legal entities
- Earnings resulting from unpaid work, paid by legal entities
- Income from rent
- Royalties paid by corporate companies
- Earnings paid, credited or delivered to legal entities located abroad, by a paying source located in Brazil
Its main characteristic is that the buyer itself has to establish the incidence, calculate and pay the tax instead of the beneficiary.
It is also applied to paid, credited or delivered income to legal entities located abroad for sources in Brazil. The rate varies depending on the legal nature of the income, the country where the beneficiary is resident and the tax system to which it is subjected to the legal entity abroad.
IE is the abbreviation for Imposto sobre a Exportação. It is an export tax applied to national products sent abroad.
The calculation basis is the final price that the product would reach on the international market under free competition conditions. It is calculated on the final price of the product including freight.
Rate: From 30% to 150%.