Food taxes in Brazil vary depending on how the food was bought by the consumer. Is it considered as a service, or considered as a product sale? In this article, we will take a look at which taxes are levied on food in Brazil.
Overview of ISS and ICMS
There are two different taxes that customers may directly pay for when acquiring a product or a service: the ICMS and the ISS.
The ICMS, Imposto sobre Circulação de Mercadorias e Serviços, which is Portuguese for Tax on Circulation of Goods and Services, is a state tax that is applied to the operations of movement of goods, as well as interstate, inter municipal and communication services.
The ISSQN or ISS, Imposto Sobre Serviços de Qualquer Natureza, which is Portuguese for Tax on Services, is a Brazilian municipal tax that is charged for the provision of any kind of service. The ISS is not intended to be charged for products or services if ICMS has already been charged and vice versa.
Even though the laws that regulate these two different taxes determine which operations the ICMS and the ISS are to be charged, it is not unusual to have doubts about which tax is applied on which operation. This article will clarify doubts regarding taxes for food services in eat-in (restaurants, bars) locations, in take-out (pizza place, bakeries) locations and hotels.
According to legislation, the ICMS will be levied on all operations relating to the circulation of goods, including the provision of food and beverages in bars, restaurants and other similar locations. Consequently, ISS is not charged on food in eat-in locations.
It is important to note though that the ICMS charged on food and the ICMS charged on beverages is different. In the case of beverages, there are several categories, for example:
- Alcoholic drinks
Since ICMS is a state tax the basis for how ICMS is calculated has large variations from state to state in Brazil.
The legislation that regulates the ICMS clearly states that: the event that characterizes the taxation by the ICMS is the provision of food, drinks and other goods by any company, including all services that are attached to it. Also, food that is delivered directly to the customer is not taxed with ISS, since this service is not included in the list of taxable services prescribed by law.
Moreover, it is important to note that the main activity of a pizzeria, for example, is making pizzas, not delivering pizzas. Thus, the service it offers is classified as “food provision” and not transportation. The pizzeria offers in addition the service of delivery, which is already included in the cost of the pizza, on which the ICMS is charged.
Hotels, motels and other similar locations may offer food services to their guests in two different ways:
- Already included in the room rate
- Not included in the room rate
In the first case, ISS is charged on the full room rate, since the food services that the hotel offers to its guest is included in the list of taxable services in the law that regulates ISS.
Otherwise, whenever food services are not included in the daily rate, the ISS is charged only on the room rate, whilst the additional food services are charged with the ICMS.