International companies are aware that Brazil has a huge IT market to be explored, but the current Taxation and Customs Law lack updates regarding software sales. Understand the contradictions about imports in this area.
In order to understand software import taxation in Brazil, it is important to know the various opinions that revolves around this kind of business. Currently, Brazil confronts heated discussions on how to collect taxes from the commercialization of software in the country, as we still have not a established article in our Tax System contemplating all the possible aspects of this activity.
The subject generates major controversy, especially when it comes to the differences between downloaded and CD-Room software taxation. But before getting into the hottest point of the issue, let us review other questions that will help us comprehend in what way the loopholes of the Brazilian Law generate a lot of controversy.
Is a software a good or a service?
There is still no jurisdictional consensus about that. For most of tributary specialists, a software, in essence, can be defined as a service, because it is, above all, an intellectual work, such as book, a CD or a movie. For that, its commercialization involves licensing and assignment of copyrights.
For other experts, a software, like the book, the CD or the movie, have got to be commercialized as a product. Also, there are people who think that software is both a service and a good at the same time. Rather confusing, no?
Actually it is not confusing if we think about a colorful software's CD box displayed in some store shelf. That is a product, which contains the service, the information good. But we can also think about a software that helps a company with financial control, for example. Looks like just a service provided, no?
What says the current law?
The current law distinguishes two basic ways for the import/production/commercialization of software:
- Standard software: serial production, sold by stores in large scale
- Customized software: an unique system developed accordingly to the customer requirements
There is a great discussion about which taxes each of those two sales categories should collect, related to whether software are a product or a service. The Standard software sales involves the circulation of an intellectual work (the program itself) inside a physical support (the installation CD-ROOM, for example). The law says that the physical support is inseparable to the software it carries inside. Because of that, Standard software are seen as goods, so their import collects ICMS, IPI and II (Import Tax), as any other imported good.
As for Customized Software they are considered services, which means that their importers have to pay ISS, IRFF, PIS-Cofins-Import, besides of Cid-Technology (referring to the money sent abroad for copyrights). Plus, Customized Software companies have to pay taxes over the services rendered to their clients on installation and maintenance of the software.
But what is the real difference between those two kind of software so they collect a total different type of taxes and contributions? Actually there is no consensus about it, as we have already seen.
Good news for big foreign players is that this situation weakens the national software industry (basically composed by Customized software companies), that cannot compete with the huge Standard software multinationals, that still supply 70% of the national software market. It is still much cheaper for Brazilian companies and individuals to buy ready software than Customized.
Importing software via download
If you think things are complicated by now, get ready for more. Currently, the trickiest discussion on software taxation centers around the ones that are purchased online, via download. By the law, internet software sales have to pay the very same taxes as the ones sold physically. The online purchase of the software does not overrule the tributary aspects of the activity. In theory.
Yet, there is no specific article in Brazilian customs legislation that contemplates imported software sold via download. Because of that, software acquired by internet from abroad cannot be assimilated to other imported physical goods. So import taxes should not be charged on the foreign software internet sales. That is the position of many tributary experts.
Until now, a lot of national and international companies continue to sell their software without registering the sales and paying the due taxes. In Brazil, the internet commerce zone is still a kind of “free territory”. Aware of that, the Brazilian Fisco is already improving its IT operations to better detect software sales through download.
Tax collection generator factors
The incidence of taxes in the software's sector depends partly on where the software is developed and commercialized. According to the Brazilian Law, there are three factors that generates the collection of tributes (tax and collections) in the software segment.
- Profit or revenue resulting from the software's commercialization and provision of computer services. Taxes levied: IRPJ, CSLL, PIS, Cofins, ISS.
- Customs clearance of products or imported goods from abroad and the receiving of computer services provided abroad. Taxes levied: PIS-Import, Cofins-Import, ICMS, IRFF (Withholding income tax), II (Import Tax), IPI, ISS. In this case, PIS, Cofins, ICMS, IPI, II (Import Tax)relates to the software's physical support (CD, for example).
- Overseas remittance to the payment of copyrights for companies that commercialize foreign software . Taxes levied: IRFF, ICMS.
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