In many countries, the government may grant tax benefits in order to stimulate certain socially responsible activities. In this article, we will take a look at tax exemptions for NGOs in Brazil.
As of 2010, when the last relevant report on the Third Sector in Brazil was published, there were over 290.000 NGOs registered in Brazil. The most relevant NGO categories in Brazil are:
- Religious services and rituals, represented by 82.900 NGOs
- Associations of employers and employees
- Development and defense rights
Qualification for exemption
In Brazil, ONGs are part of a special category that are exempt from paying taxes. In fact, ONGs are referred to as OSCIPs in Brazil. OSCIP is the denomination used for Civil Society Organizations of Public Interest, an NGO that is duly recognized by the Brazilian Government.
The OSCIPs activities must be available for the entire population, complementing governmental initiatives and can not seek to make profit. In cases where an OSCIP makes profit, it should be allocated to the maintenance and development of its social goals. Also, all property, revenue and services of OSCIPs in Brazil are exempt from paying taxes, provided that they are directly related to the OSCIP’s activities.
Tax exemptions for OSCIPs
OSCIPs benefit from exemption on two taxes in Brazil:
- Imposto de Renda da Pessoa Jurídica, which is Portuguese for Corporate Income Tax, also known as IRPJ
- Contribuição Social Sobre o Lucro Líquido, which is Portuguese for Social Contribution on Net Profits, known as CSLL
It is important to mention that all profits made on fixed income investments or in equities are not exempt from payment of IRPJ and CSLL.
Conditions for exemption
In order for OSCIPs to receive tax exemptions, they must comply with the following requirements:
- Fully use their resources in the maintenance and development of their social goals
- Do not remunerate, in any way, their directors for services rendered
- Maintain thorough bookkeeping of income and expenses
- Keep in order, for a period of five years, documents proving the origin of revenues and expenses, as well as documents related to any other acts or operations that modified the OSCIP’s assets
- Deliver, annually, an Income Statement for purposes of supervision by Receita Federal do Brasil, which is Portuguese for the Brazilian Federal Revenue Service
- Collect taxes withheld at source on income paid or credited by the OSCIP and pay the contribution to Social Security for its employees
- Ensure that all assets will be passed onto another institution - provided that it also benefits from the same tax exemptions as the first one - or to a government agency, in the case of merger, consolidation, division or termination of their activities
Other tax benefits for the Third Sector in Brazil
As a way to stimulate the growth of the Third Sector in Brazil, the Brazilian government offers additional incentives to OSCIPs. For instance, donations by companies to Entities of Federal Public Interest and OSCIPs can be deducted by up to 2% of the revenue if the company is subject to taxation arrangements known as Lucro Presumido.
This system is named “shared incentive” because it allows the donation to be considered an operational expense. This way, the profit of the company is reduced and lowers the calculation basis for the IRPJ.