Brazil Tax & Business Guide - Deloitte

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Basic facts
Population 186.8m Inflation 4.2% (2006)*
Main languages Portuguese (official) GDP per head US$5,070*
Currency Real (BRL) GDP growth 2.9% (2006)*
Economic communities Latin America Integration Association, Mercosur, WTO
GDP sources 8.0% agriculture, 37.9% industry, 54.1% services
*Economist Intelligence Unit estimates.
Political environment

Brazil is a federal republic. The president executes the policy approved by the Chamber of Deputies and the Senate. Constitutional review is by an independent judiciary.

The president, Luiz In?cio ÏLulaÓ da Silva, of the Labour Party, began a new four-year term on January 1st 2007.
Foreign trade and investment
Exports US$138.9bn (2006)* Imports US$95.3bn (2006)*
*Economist Intelligence Unit estimates.

Leading export markets: The US, Argentina, the Netherlands and China.

Major exports: Transport equipment & parts, metallurgic products and soy.

Foreign capital may enter the country freely and is treated on a par with local capital.

No rules expressly prohibit foreign takeovers, but approval is required for stock market buy-outs.
Business and financing
Business forms Limited liability company; joint stock company

Foreign firms generally set up operations by establishing a limited liability company (sociedade por quotas de responsabilidade limitada), which requires fewer formalities and less public disclosure than the joint stock company (sociedade anŸnima). Companies may also organise as a branch, but unless there is a substantial tax advantage in the investorÌs home country, the disadvantages of this form probably outweigh the benefits.

There are few restrictions on repatriating profits and dividends, or on the movement of capital once it is registered with the Banco Central do Brasil (the central bank).
Labour environment
Unemployment rate 10.3% (2006)* Minimum wage BRL 350 (monthly)
*Economist Intelligence Unit estimate.

In December 2006 Mr da Silva signed legislation to increase BrazilÌs monthly minimum by 8.6% as from April 2007.

Brazil has a highly regulated system of labour relations.

Qualified managers are widely available, although intense competition to hire executives spurs rapid turnover.
Taxation
Corporate tax
Standard rate 15%

Resident companies pay tax on worldwide income; non-resident companies pay tax only on Brazilian-source income. A company is resident if its place of effective management is in Brazil. In addition to the corporate income tax, companies are also subject to an income surtax at a flat rate of 10% on profits exceeding BRL 240,000 (annually), and a social contribution on net profits imposed at a rate of 9%, bringing the effective rate to 34%. In some circumstances, small businesses with turnover under BRL 2.4m may qualify for the simplified tax regime, under which they pay a single tax rather than the corporate income tax, social contribution and other taxes. The tax rate under the simplified regime varies according to turnover.
Individual tax
Progressive rates rising to 27.5%

Resident individuals are taxed on worldwide income; non-residents are taxed only on Brazilian-source income. An individual is deemed to be a resident if the individual holds a permanent residence permit or holds a temporary visa and has an employment contract in Brazil. Any individual staying for 183 days within a 12-month period is resident for tax purposes. Individual income tax is charged at progressive rates to 27.5%, and the monthly tax payment in respect of employment income is calculated at the same rates.
Capital gains
Generally taxed as income

Gains of companies are taxed as income, but with restrictions on the offset against other income in some cases. Individuals are taxed on gains at 15%. In general, capital gains realised by non-residents on investments registered with the central bank are subject to a 15% withholding tax.
Indirect tax
Standard rate 18%

A state value-added tax (ICMS) is levied by individual states on the value added of products and some major services. The rate on interstate transactions is 7% or 12%, depending on the state of origin and destination. The rate on intrastate transactions ranges from 17% to 25%, with the rate prevailing in the most developed states being 18%. A federal value-added tax (IPI) applies at varying rates to a range of manufactured goods and products when they leave the factory or are imported. Exports are exempt from both taxes.
Tax administration and compliance
Tax year Corporations: calendar year; Individuals: calendar year

Legal entities are generally charged corporate income tax on a quarterly basis, but may elect to be assessed annually, in which case they make 12 monthly advance payments of tax based on an estimate of their liability, calculated on the basis of a percentage of monthly turnover. The percentage varies depending on the type of industry. Individuals make monthly payments of tax.
Additional tax information
Withholding taxes Dividends 0%, Interest and Royalties, 15%.
Tax treaties Brazil has more than 25 tax treaties.
Dividends Dividends are not taxable.
Revenue protection There is transfer-pricing, CFC and general anti-abuse legislation.
Groups There is no provision for group taxation.
Incentives Incentives are regional and industry-based, and there are incentives for exporters and technology companies.
Other taxes Banking tax, Excise tax, Inheritance and gift tax, Municipal urban property tax, Social contribution tax, Social tax on imports, Social security and rural property tax contributions, Transactions tax, Tax on services, Urban real estate transfer tax.