7 Ways to Reduce Taxes on Import of Products to Brazil

Egil Fujikawa Nes

Co-Founder
The Brazil Business

Updated

19 August 2015

In this article we will be looking at strategies on how to reduce the taxes when importing products to Brazil.

Taxes and import duty are always a hot topic in Brazil and there are many questions about how to reduce the overall tax burden on imported products.

1. Reducing the CIF Value Before Importing to Brazil

There are 5 taxes and duties that you will have to pay when importing a product to Brazil. The taxes that you need to familiarise yourself with are:

• Import Duties known as II
• Tax on Industrialised Products known as IPI
• Social Contribution known as PIS
• Social Contribution known as COFINS
• ICMS which is a Value Added Sales Tax

The calculation base for each of the duties and taxes are as follows:

• II
  Cost, Insurance and Freight better known as CIF value
• IPI
  (CIF * (1 + II))
  
• PIS and COFINS
  (CIF * ( 1 + ICMS * (II + IPI * (1 + II)))) / ((1 - PIS - COFINS) * (1 - ICMS))
• ICMS
  CIF + Cost IPI + Cost PIS + Cost COFINS + Other Costs

The only tax that is unique for imported products is the Import Duties. In most cases the four other taxes will apply in the same way for a Brazilian product as for an imported product.

For more information about the calculations you can read the article: How to Calculate Brazilian Import Duties and Taxes.

The lower the CIF value of your product, the lower the import duties and taxes are going to be.

2. Reducing the Import Duties by Local Assembly

Not all countries and not all products are treated equally when it comes to importing to Brazil.

Products that are intended as components in manufacturing tend to enjoy lower import duties than products that are ready to be sold to the consumer. Depending on the complexity of the assembly there may be significant savings by importing the components separately and performing the assembly of the products in Brazil. This is typically the case for manufactured goods where much of the value is in the actual assembly process.

The additional advantage of local assembly is that you can also source components locally, and this is beneficial when compared to importing the components.

3. Reducing the Import Duty for Products with no Equivalent in Brazil

There is a special scheme available for products that cannot be found in Brazil. The scheme is named Ex-tarifário and products that qualify for this category will normally receive a temporary reduction of 2% of the Import Duties for two years.

In order to add a product to the Ex-tarifário scheme it is necessary to obtain a certificate for non-similarity products in Brazil. This certificate takes about 30 days to be issued.

After obtaining the certificate, it’s necessary to request the Ex-tarifário from the Secretaria de Desenvolvimento da Produção which is Portuguese for Secretary of Production Development.

The request must have information about the applicant, which is the company or entity that is submitting the request, technical information about the product, an estimated volume of import, the investments and the purpose of the request. Once the request is registered, the process takes from three to five months to be completed.

4. Reducing the Import Duty by Importing from Mercosul

Mercosul is a free-trade zone, which means that its members have eliminated all tariff and non-tariff barriers that could affect their economies.

Despite many years of existence, Mercosul is quite far from achieving the status of a Common Market. Currently, the group is defined as a full customs union.

Therefore, import duty on goods traded between the member countries are exempt, however all other taxes still apply.

5. Do NOT add Sales Markup Outside Brazil

The main issue for foreign companies that start to sell to Brazil is that they cannot compete with other imported products in terms of price, leading some to believe that there are loopholes in the system that they don’t know about.

The calculation however is very simple and there are no special loopholes needed. Take the following scenario for two companies importing the same computer produced in China:

• Company 1: International company importing to the United States before selling FOB to Brazil
• Company 2: Brazilian company importing and selling directly in Brazil

Price Calculation Company 1:

Price Calculation Company 2:

Both scenarios have the exact same markup on the product however Company 1 end-up with a product that has a 22.89% higher sales price in Brazil than Company 2.

If you are dealing with industrialised products that already have a high tax rate the differences are going to be much higher.

6. Do Add Sales Markup in Brazil

The corporate revenue tax known as Imposto de Renda de Pessoa Jurídica is low in Brazil compared to most other countries.

The corporate revenue tax rate is either 15% or 25% depending on the structure of the company. For payment of dividends and profits abroad there are no taxes or restrictions beyond which the Brazilian company must provide proof that is acutely profitable.

As we have shown under the section "5. Do NOT add Sales Markup Outside Brazil", in most cases having a legal entity that pay dividends and profits abroad is a better tax arrangement than to import products to Brazil with the markup already included. For companies headquartered in countries that have a double taxation agreement with Brazil there will normally not be any additional taxes on the profit in the home country either.

By running a legal entity in Brazil there are also possibilities for further savings by recovery of social contributions based taxes for things like developing local areas or even some types of training for your staff.

7. Select a Beneficial Location

Brazilian states and municipalities are in constant fiscal wars leading to all kinds of complicated tax exemptions and compensations.

For import related topics there is usually the ICMS that causes the most variation and this changes both based on industry and geography. Some examples include:

• Bahia collects lower ICMS from operations involving certain goods produced in the state, such as vehicles, shoes and furniture
• Pernambuco offers ICMS benefits to attract more operations involving imported goods
• Goiás grants ICMS benefits for companies that produce airplanes, parts and components

However state specific tax exemptions are a moving target and building a business based on tax exemptions might not be a long term solution.

A few years ago some Brazilian states, like Espírito Santo and Santa Catarina defined that operations involving foreign products were subject to ICMS exemption. For some time, if an import operation happened in Santa Catarina instead of Minas Gerais, companies would face a rate of 0% instead of 7%. To eliminate this issue, the federal government established a unified 4% ICMS rate for all the interstate operations in the country.