Tax Exemption for Social Assistance Institutions
Tax reduction strategy is vital in Brazil due to the infamy of the country’s high tax burden. This article examines the available tax exemptions for social assistance and non-profit institutions.
Social Security is comprised of policies and actions that aim to help and support citizens for events resulting from death, sickness, invalidity, age, unemployment and economic incapability. The social security is composed by three components:
- Social Insurance/Pension System: program intended to compensate individuals for loss of working capacity by paying pensions or financial benefits.
- Health: Set of policies and actions for medical, health, nutritional, educational and environmental that aimed to prevent and cure health problems that affect the individual and/or their dependents.
- Social Assistance: Compensatory or redistributive programs designed for the needy.
An authentic Social Security system defends that the benefits described above should be universal. Therefore, it is necessary for the compulsory collection of individualized contributions, combined with the existence of some proportionality between the contribution and the value of the benefits and/or services.
In some specific cases, this contributory bond cannot occur, which is the case of charitable organizations, NGOs and other institutions linked to social assistance activities. More than 6,500 philanthropic entities were registered in the National Council of Social Assistance – the CNAS. Of that number, 64% were exempt from social contributions and taxes.
Recognition and Exemption
The profits acquired with this type of taxation are designated for the social area. The condition of charitable entities of social assistance is certified by the Ministry of Social Assistance, the Ministry of Health and the Ministry of Education, through the Certificate of Philanthropic Entity of Social Assistance – CEAS.
Since the institution full and fit the requirements provided by the Federal Revenue webpage, the exemption is already designated to it, without the needing of a formal requisition to the Secrecy of Federal Revenue.
The right to tax exempt status is for the following contributions:
Tax Reductions
The social assistance institutions are also exempt from the payment of the following contributions:
- 20% for Social Security, levied on the total remuneration paid, payable or credited in any way during the month, to the insured employees, temporary workers and individual taxpayers (self-employed) who provide services to entity.
- 1%, 2% or 3% for the financing of special retirement and for benefits to environmental risks of the job, levied on the total remuneration paid, payable or credited in any way during the month, to the insured employees and temporary workers providing services to the entity.
- 15% for Social Security, levied on the gross amount of the invoice for services provided by cooperatives through cooperative work.
Exemptions for Whom?
To enjoy the tax exemption the philanthropic entities must:
- Be legally constituted in the country and must be in effective functioning.
- Has registration in the city council, state council or district council of social assistance.
- Possess the CEAS.
- Be registered in the CNAS.
- Apply their revenues, resources and financial results completely in the national territory and according to the institutional objectives.
- Fully implement the eventual result of its operating activities in the maintenance and development of its institutional objectives.
- Apply the grants and donations received in the purposes to which they are linked.
- Apply 20% of gross revenues in gratuities.
- Doesn't distribute financial results, dividends, bonuses, shares or portion of its assets.
- Doesn't pay, give or grant benefits to directors, members, founders or benefactors.
- Intended in its constitutive acts, in case of dissolution or termination, assets to another entity counterpart recorded in CNAS.
- Doesn't constitute assets of the individual or of the partnership without charity character of social assistance.
- Provide services permanently and without discrimination of clientele.
- Promote social welfare charity for the needy, especially children, the elderly and the disabled ones.
It's All Up to INSS
Having the Certificate of Philanthropic Entity of Social Assistance isn't the only requirement for the entity to attain the automatic exemption. It is ultimately up to the INSS to evaluate if the entity has conditions to be considered exempt from the payment of the contributions and taxes mentioned above. The philanthropic entity can lose the social security exemption, when INSS considers that the institution has violated legal requirements.