Igor Utsumi

Igor Utsumi

Staff Writer
The Brazil Business


Introduction To ISS

Igor Utsumi

Igor Utsumi

Staff Writer
The Brazil Business


The Brazilian Tax on Services is an important source of revenue for Brazilian municipalities. This article will explain a little more about this tax, and will also show the main controversy around the tax.

The Brazilian tax charged over the provision of services is Imposto Sobre Serviços de Qualquer Natureza, known as ISS or ISSQN.

This tax varies a lot throughout the country, since it is collected by municipalities. The federal government sets a maximum and minimum ISS rate, as well as other limitations, such as a list of services that can or cannot be taxed. The law that currently regulates ISS at a federal level is from 2003.

When ISS is applied

As the name implies, the triggering event of ISS collection is the provision of various services, listed by the federal government. There are almost 200 services on this list, relating to:

This tax is also applied to services provided by foreign companies in Brazil, even if the service itself was initially provided abroad and finished in Brazil.

Note that the Tax on the Circulation of Goods and Services (ICMS) is not charged on services that are part of the list above. Some exceptions may apply, like the supply of food and beverages to parties, or the supply of parts and pieces that will be used in the maintenance of engines. Those are subject to the collection of ICMS instead of ISS.

When ISS is not applied

The law that regulates ISS also lists a few cases where the Tax on Services is not charged. Services exported to other countries, for example, are exempt.

Also, ISS cannot be applied whenever there is a labor contract. A classic example is if an associated lawyer is hired by a law firm, he is not obligated to pay this tax.

There are also many other cases of ISS exemption, but they vary widely from municipality to municipality, since they are the ones responsible for collecting this tax. Some activities and sectors usually do not pay this tax in a large number of Brazilian cities.

Examples of services that are immune from paying ISS are:

  • Services provided by the government or by governmental entities
  • Services provided by political parties and labor unions
  • Books, newspapers, magazines and similars

There are also services which can be either exempt or benefit from reduced ISS tax rate in most Brazilian cities, such as:

  • Services provided by cultural and sports associations
  • Some services destined to social programs, such as ones relating to the construction of affordable housing

How ISS is calculated

According to Brazilian law, the tax will be charged based on the location where the company responsible for providing the services is established. This means that if a corporation established in the city of São Paulo is providing services for a company in the city of Santos, for example, the charged ISS rate will be the one from São Paulo.

There are a few exceptions to this rule. If the service provider does not have a facility - commonly seen with freelancers, for example - the tax will be charged from the provider’s residence.

A few types of services also do not follow this rule. Sometimes, the tax might be charged from the place where the service is being rendered. Some examples are:

  • Demolition of buildings
  • General construction of bridges, roads, ports and airports
  • Cleaning and drainage services
  • Deposit, storage, loading and unloading of cargo

The maximum ISS rate set is 5%, and the minimum rate is 2%. These rates are charged on the price of the services being provided.