Understanding ICMS
ICMS is one of the most common taxes in Brazil and applies to the commercialisation of goods and services. In this particular article, we will give a detailed approach to this tax, focusing on what it applies to.
What is ICMS?
ICMS is the abbreviation for Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações. It is a tax on sales and services and applies to the movement of goods, transportation, communication services and other general supplying of goods.
Overall, it is paid by private individuals and legal entities who commercialise any goods; by those who import products; those who acquire goods seized by customs and those who acquire petroleum products from abroad.
What does it apply to?
ICMS applies in the following cases:
- Operations related to the movement of goods, including food and beverages in bars, restaurants and similar establishments
- Transportation of primary, industrialised or semi-manufactured products or services between states or municipalities
- Provision of costly communication services, including the emission, receiving, transmission, retransmission, repetition and the expansion of communication of any kind
- Supplying of goods through services providing not foreseen by the municipalities tax burden
- Supplying of goods with the provision of services subjected to Brazilian Tax on Services ISS whenever the law determines the collecting of the state tax
- The entrance of imported goods by private individuals or legal entity, even when the goods are destined for consumption or are a permanent asset of the establishment
- Provision of services abroad
- The entrance in national territory of petroleum products (including lubricants, gas and liquid fuels originated from it), electricity when it is not destined for commercialisation and industrialisation, originated from interstate operations, being the taxation, then, in charge of the State.
Who pays for it?
Taxpayers are any private individual or legal entity operating the movement of goods and the provision of transportation services between states and between municipalities with a commercial purpose or on a regular basis and communication services providing, even if the entire transaction begun overseas.
Also considered as an ICMS taxpayer are legal entities and private individual who:
- Import goods, even though they are destined for consumption or are permanent assets of the establishment
- Recipients of services provided abroad or that have started abroad
- Purchase of good seized by customs
- Purchase of lubricants and petroleum based liquids or gas fuels, electricity from other state when it is not destined for commercialisation and industrialisation
Calculation basis for ICMS
The basis for the calculation of ICMS will depend on the operation performed. Generally speaking, it is calculated on the value of the operation. On imports, the ICMS is determined by the sum of the following amounts:
- Declared value of the goods
- Import Taxes, or II
- Tax on Industrialised Products, or IPI
- PIS
- COFINS
- IOF
- Siscomex taxes
- Other expenses
Partial refund of ICMS
In an attempt to restrain tax evasion, back in 2007, the São Paulo state government launched Nota Fiscal Paulista, a plan to encourage customers to demand that companies pay their ICMS. This programme was also later replicated in other states.
The programme reimburses customers with up to 30% of the ICMS effectively collected from commercial establishments. Customers can receive the reimbursement in cash, credits, prizes or IPVA tax exemption.