Buying and selling used cars is a common practice in Brazil, not only between individuals, but also involving car dealers. This article will cover the main taxes charged when selling used cars in Brazil.
The sale of used cars in Brazil has been a struggle during the past few years. The easier process to acquire a new vehicle, the speed with which new models are produced and tax incentives approved by the federal government for the sale and production of new cars were some of the reasons for this situation.
Recently, with prices of new cars growing again due to the end of tax incentives, like the ones applied to IPI for car manufacturers, the demand for used cars is increasing. In the first quarter of 2014, sales of used cars by car dealers grew by almost 9% in comparison with the same period of the previous year, according to FENABRAVE — Federação Nacional da Distribuição de Veículos Automotores, or National Federation of the Distribution of Motor Vehicles.
Not only is the current scenario different for used and new vehicles, but also the taxation on them. When it comes to taxes relating to used cars, there are two different categories: taxes charged on the sale and taxes charged on the profit obtained.
It is important to remember that, in Brazil, taxes can be applied and regulated by the federal government, by each State, or by each Municipality. Also, the purchase of used cars in Brazil is not taxed; the taxes are charged either on the circulation of the goods or on the revenue.
Taxes Charged Over The Sale
Most goods’ sales in Brazil are subject to paying taxes, even if the products are used. There are two main federal taxes relating to used vehicle sales — PIS and Cofins — and one state tax, ICMS, that varies according to the state where the car is located before and after being sold.
The federal taxes use the difference between how much the vehicle cost originally and how much is being paid for it at point of sale as the calculation basis.
So, if a used vehicle was acquired for BRL 30.000 and is sold for BRL 35.000, the taxes will be calculated over the added value of BRL 5.000 difference.
This is the acronym for Social Integration Program, or Programa de Integração Social. The current PIS aliquot is 0.65%, which is calculated by taking the difference in price between how much the vehicle cost originally and how much is being paid for it at point of sale.
This is the acronym for Contribution To Social Security Financing, or Contribuição para o Financiamento da Seguridade Social. The current Cofins aliquot is 3%, and is also calculated by taking the difference between the vehicle’s original cost and current cost.
ICMS, The State Tax
As previously mentioned, the ICMS is charged differently in each Brazilian state, both the rates and calculations vary according to the territory where the sale is made. ICMS stands for State Tax On Circulation Of Goods And Services, or Imposto Sobre Circulação De Mercadorias e Serviços. The rate may also vary if the sale is made between two parties established in the same state or in different territories.
In São Paulo, for example, the calculation basis is 5% of the transaction value. The rate, which in São Paulo state is 18%, is charged on top of the 5% of the transaction value.
So if a vehicle is sold for BRL 35.000, the calculation basis is BRL 1.750, and the ICMS charged over this amount is BRL 315.
Taxes Charged Over The Profit
The profit obtained from the sale of a used car are taxed differently, depending on the type of seller. If an individual is the seller, IRPF, the Individual Income Tax, may be applicable. If a company is selling the used vehicle, the duties applied are IRPJ and CSLL.
Used Car Sold By An Individual
When the sale is made from one individual to another, or from an individual to a company, the taxation may occur through what is called capital gain, or ganho de capital.
Basically, this means that if the amount obtained from the sale of the vehicle is higher than the declared value, 15% Income Tax is calculated on top of the profit. This means that, if a person has a used car with a declared value of BRL 30.000 and sells it for BRL 35.000, the profit of BRL 5.000 is used to calculate the 15% Income Tax. Which would be BRL 750 Income Tax.
However, since there is no capital gain in most cases that a used car is sold by an individual, the IRPF is rarely charged.
Used Car Sold By Company
Since companies usually profit when selling a used car, they are more susceptible to paying taxes. There are two different taxes: IRPJ and CSLL.
The IRPJ, or Imposto de Renda de Pessoa Jurídica, is the Income Tax paid by companies. In the sale of a used car in Brazil, there is a rate of 32% on top of the profit to determine the “presumed profit”. This presumed profit serves as a calculation basis only, and a new rate of 15% applies in addition, resulting in the IRPJ paid.
So, basically, lets suppose a company had a profit of BRL 5.000 for selling a used car. In this case, the presumed profit is BRL 1.600. 15% is charged on top of this calculation, resulting in BRL 240 that must be paid as IRPJ.
This acronym stands for Contribuição Social sobre Lucro Líquido, or Social Contribution over Net Profit. CSLL is paid at a rate of 9% and the calculation base is 32% of the profit made from that transaction.
So, in our example, on top of the BRL 1.600, a rate of 9% is applied. This results in a payment of BRL 144 to CSLL.
We would like to thank the Brazilian accountant Cláudio Cardoso da Silva for the background information to this article.