The Difference Between ISSQN and ICMS
Brazil has so many different taxes for the most varied products and services that, sometimes, people get confused about what should be paid.
ISSQN is the short term for Imposto Sobre Serviços de Qualquer Natureza. Also called ISS, it is the tax upon services of any kind – that are not covered by ICMS, the Tax on Circulation of Goods and Services.
ICMS is applied to operations of movement of goods and interstate, intermunicipal and communication services. It's important to notice that the ICMS must be paid when there is transfer of product ownership.
Just like ISS isn't supposed to be charged for services covered by ICMS, the same happens on the contrary: goods that are charged with ICMS aren't supposed to be charged by ISS. Even though they are very well delimited, it's not unusual to have doubts about the two of them.
What the law says
The Constitution determines that every political branch has the power to collect some taxes, based on the following criteria: the Federal government collects industrial taxes; state governments and the Federal District collect commercial taxes, and municipalities and the Federal District collect taxes on services. In some cases, though, states and municipalities get in conflict to decide about what is considered a service and what can be classified as a commercial activity.
For instance, when the subject is industrialization on request, municipalities agree that the tax that must be paid is ISS, while states believe that it is a case of charging ICMS. Due to the occasional doubt involving the taxes, in 2003 it was proposed that they were unified, in order to avoid more confusion. However, they are still being separately charged until today.
Know your law
ISS is charged over services which are on a list, that are part of the fiscal competence of the municipalities. It means that the law changes according to the city where it is applied.
The fact that the law is different in every one of the 5.564 municipalities in Brazil is challenging to businesses, being important to know very well how it applies in the place where they are setting up their operations.
In 2011, there was a research made with 424 companies in Brazil. It indicated that almost half of these businesses had already paid taxes with a too hgh aliquot, at least once. Why? Because they weren't really aware of the legislation and their databases weren't updated. This shows that it is really necessary to understand how the law applies in the municipality where you'll start your business, so that you don't spend more money than you should.
When do I have to pay ISS?
In 2003 it was created a Complementary Law that regulates the ISS. In this law, there is a large list of services that are included in the payment of the tax, which must be made by the service provider. It includes the following services and others, similar to them:
- IT services
- Search and development services
- Services provided when there is rental or concession of usage rights
- Services of health, medical assistance and veterinary medicine
- Services of personal care, esthetics and physical activities
- Services related to architecture, engineering, geology, urbanism, civil construction, maintenance, cleaning, environment and sanitation
- Services of education, teaching, educational guidance, instruction, training and personal assessment
- Services related to lodging, tourism and trips
- Mediation services
- Services of leisure and entertainment
- Funeral services
- Social assistance services
- Services of biology, biotechnology and chemistry.
You can check the complete list, available only in Portuguese, here.
Examples of services charged by ISS
- Installation of scaffolding, stages, roofs and other temporary structures
- Demolitions, when related to engineering, architecture etc
- Construction of buildings, roads, bridges, ports and congeners
- The actions of sweeping, collection, removal, incineration, treatment, recycling, separation and final destination of trash and other residues
- Cleaning, maintenance and conservation of public areas, landed properties, chimneys, pools, parks, gardens and congeners
- Decoration and gardening, cut and prune of trees
- Control and treatment of any effluent and of physical, chemical and biological agents
- Afforestation, reforestation, sow of seeds, manure and congeners
- Services of propping, contention of hillsides and congeners
- Services of cleaning and dredging of rivers, ports, channels, bays, lakes, dams and weirs.
How do I pay the ISS?
ISS can be collected monthly, until the 25th day of the following month of the service provision, or annually, establishing a fixed cost for every activity. The aliquot ranges from 2% to 5% over the revenue of the company which provided the service.