VAT in Brazil is composed of three main indirect taxes: the tax on sales and certain services (ICMS), the excise tax and the service tax. The three taxes are state, federal and municipal and, in addition to these, companies are also subject to other taxes.
VAT registration in Brazil in 2023 is mandatory for all businesses that supply goods or services that are subject to the VAT/GST and other indirect taxes (IPI, ICMS, ISS, PIS, or COFINS).
Our agents specializing in company formation in Brazil can assist investors who are interested in knowing more about the indirect taxes applicable to companies. Read more about the VAT in Brazil below and reach out to our team if you have questions.
We can also assist those who wish to search for a VAT number in Brazil.
Understanding the tax compliance requirements is essential for investors who open a company in Brazil. Our team not only offers complete incorporation services, but we also offer guidance as needed for tax and compliance matters. If you have any other questions about the value-added tax or the tax filing and payment requirements in the country, please feel free to reach out to us.
VAT registration in Brazil for a foreign company
Foreign companies that have opened a permanent business establishment in Brazil are subject to the same requirements to register for VAT as a local company. This means that they will need to register when their company supplies goods or services that are subject to the entirety of the taxes that make up the VAT/GST obligations in the country.
In addition to the need for registration, the foreign company will also be required to appoint a fiscal representative, but only when it has opened a permanent establishment.
For the purpose of VAT registration in Brazil, the permanent establishment is a branch or a subsidiary, a business that engages in commercial activities (which, as previously mentioned, are subject to these indirect taxes – the VAT, GST, and other ones).
The foreign legal entity will follow the same registration steps with the authorities and there are no applicable special forms in its case. Because foreign companies are subject to the same requirements, our team can provide investors with complete assistance during this mandatory phase.
We remind investors that when a foreign corporation opens a permanent establishment in Brazil that will engage in commercial, taxable operations, this business will be subject to the entirety of the tax liabilities that apply in the country.
The legal provisions for some of the indirect taxes that apply in Brazil differ from one state to the other. Our team will give you complete details on grouping (when the company which has several permanent establishments considered taxpayers can be regarded as a single taxpayer).
Foreign companies cannot recover VAT and other indirect taxes if they are not registered for this tax on a local level. There are no exemptions to the right to recover or deduct input VAT. Our team can give you details on how the deduction of input VAT taxes takes place and the exceptions that can apply in terms of the ICMS, and other taxes.
Foreign companies interested in opening a permanent establishment in Brazil can rely on our assistance during the setup phase, as well as for the subsequent VAT and other indirect taxes compliance.
VAT registration requirements for a Brazilian company
As previously mentioned, any company that offers goods or services that are subject to value-added tax and other indirect taxes will need to register. No minimum registration threshold applies (as it would in other states), thus companies are required to perform this step mandatorily, from the very beginning when or if they engage in the supply of goods that are subject to these taxes.
The supplies that are subject to VAT in Brazil include the following:
- the movement of merchandise;
- transport services (both inter-state and inter-municipal);
- communications and electricity;
- goods imported to or manufactured in the country.
Companies are required to register separately for some of the indirect taxes. The requirements apply both in the case of local companies and in the case of foreign corporations with a permanent establishment in Brazil. For example, ICMS registration is separate in each state where the company has a permanent establishment. Businesses register for the ISS tax in the city in which they have a permanent establishment.
Our team lists the main rates and compliance requirements for VAT and the other indirect taxes below.
What is the VAT on sales and services?
The ICMS is the state VAT that is levied on the import of goods and services, as well as other services offered by Brazilian companies.
The ICMS has rates between 4% and 25%. Internal ICMS rates vary according to state. In most cases, these can range from 17% to 20%.
The format of the VAT number in Brazil includes 8 digits, composed of a radical and check digits.
In addition to the ICMS, companies also pay the IPI tax, which applies as a federal excise tax, on industrialized goods.
Together, the ICMS and the IPI represent the two types of VAT in Brazil. In addition to this, other indirect taxes apply on the supply of goods and services.
Other taxes on the supply of goods and services include the services tax (ISS), the social contribution on billing (COFINS), and the social integration program contribution (PIS).
What are the other indirect taxes in Brazil in 2023?
The excise tax is a federal tax paid by manufacturers, highlighted separately on the invoice. It depends on the type of product and can have a rate of 20%.
The municipal tax is imposed on the supply of services and the import of services (those that are not subject to ICMS). It generally has a rate between 2% and 5%.
The export of services can be exempted from the municipal tax, subject to conditions. Federal social contributions are also imposed on gross revenue, however, they are not treated as an income tax.
The VAT number in Brazil serves as the company’s tax identification.
What are the requirements for VAT reporting?
Companies are expected to submit monthly returns and make monthly payments for the ICMS, the federal excise tax, and the municipal tax.
The calculations for the ICMS tax are to be kept in fiscal books, and properly maintained.
Our team advises companies to work with an accountant in Brazil.
What other taxes do companies need to pay in Brazil?
Apart from the VAT in Brazil, companies are also subject to the following taxes in 2023:
- Corporate income tax rate: 15% standard and 34% including surtax;
- Dividend withholding tax: 0%; no withholding tax is imposed on dividend distributions paid from retained IFRS profits;
- Social security contributions: employers contribute 8% to the wages of each employee’s deferred salary account (for the severance fund) and 20% of the wages to the public pension system; in some business sectors, the public pension system contribution was replaced by a temporary contribution;
- Other taxes: Brazil imposes no payroll tax and no capital duty; there is no stamp duty and no wealth tax.
The import tax is another federal tax that applies to the permanent import of goods in the country. It has variable rates, depending on the product.
Property and transfer taxes apply to real estate transactions and owned property.
Our team specializing in company formation in Brazil and taxation can give you more information about the applicable taxes.
Research and development projects benefit from tax relief, subject to conditions.
Our company formation agents can give you more details on the VAT number in Brazil.
Foreign companies interested in setting up a branch in Brazil can reach out to our team for more information about taxation. The branch is taxed in the same way as the subsidiary, meaning that it will be subject to the same corporate income tax rate, and also to the other applicable taxes. For more information and guidance on the taxation of a permanent establishment in Brazil, please reach out to our team.
Contact our team if you are interested in company formation in Brazil and wish to know more about the local taxes, including VAT in Brazil.