Taxation on Foreign Trade has been saved
Taxation on Foreign Trade
Brazilian taxation triggered upon importation and exportation of goods and services related to the oil and gas industry
Import process – Goods
In accordance with the rules established by the Secretaria de Comércio Exterior - SECEX (Foreign Trade Secretariat), all persons or legal entities intending to engage in any import procedure must be registered at that Secretariat as a trader. This registration allows the use of the Foreign Trade Integrated System (known as SISCOMEX), the official system used to perform foreign trade operations within SECEX and RFB (Brazilian IRS).
As a WTO (World Trade Organization) member, Brazil generally follows the regular international trade rules, such as the Incoterms, Harmonized Tariff Schedule (HTS), Customs Valuation (article 7 of GATT 1994), and other documentation requirements (B/L, AWB, ProForma, Exchange Contract, etc.). Special customs regime concession and other documents may be required, such as: contracts, terms, guarantee, etc.
The following taxation will be triggered upon the import of goods:
Custom duty (II)
It is paid by the importer, and calculated upon the CIF cost (price of the goods, insurance and international freight). The cost is not recoverable and the rate varies according to the good's fiscal classification based on the Harmonized Tariff Schedule (HTS) table.
Transactions between entities located in Mercosur (Southern Common Market) countries (Argentina, Brazil, Paraguay, Uruguay and Venezuela) are subject to specific tariff classification.
Goods imported with no similar national products (technology or function), may benefit from a complete rate reduction.
Federal value-added tax (IPI)
As previously mentioned, IPI is levied upon the importation of goods and is calculated based on the sum of the CIF cost plus the II. As with the II, the IPI rate applicable on imported goods varies according to the product’s classification code.
State value-added tax on circulation of goods (ICMS)
The import of goods is ICMS taxable. The ICMS tax rate, which varies depending on the State to where the goods are destined, is applied upon the CIF value plus customs expenses, considering the II, IPI, PIS, COFINS and the ICMS itself (gross-up method).
PIS and COFINS importation
PIS and COFINS Importation are levied upon the importation of goods at combined rates of 11.75% or 12.75%, depending on the imported product. The calculation basis is the CIF value.
Imported goods are also subject to other charges, such as the AFRMM – levied on all imports transported via maritime freight.
The Supplemental Freight Charge for Renewal of the Merchant Marine (“AFRMM”) is levied on the freight charged by Brazilian and foreign navigation companies operating in Brazilian ports. It is calculated on the freight price, through the application of the following rates:
- 25% (twenty-five percent) for long haul navigation;
- 10% (ten percent) for cabotage navigation;
- 40% (forty percent) for fluvial and lacustrine navigation, involving transportation of liquid bulk in the North and Northeast regions.
Entities are allowed to calculate credits relative to IPI, ICMS, PIS and COFINS (under the non-cumulative method) incurred upon importation, provided certain conditions are met. Such credits may offset debits in each respective tax calculation.
Import process – Services
Foreign services rendered or with results verified in Brazil are liable to several taxes, i.e. PIS/COFINS-Importation, ISS (Municipal Tax on Services), IRRF (WHT) and CIDE (Contribution for Intervention in the Economic Domain). As a rule, the calculation basis comprises the amount paid, credited, delivered, utilized or remitted abroad.
With the exception of CIDE, which is typically borne by the local service beneficiary, the contractor must withhold and collect the tax and pay the net value to the foreign supplier.
Demonstration of total tax cost
The chart below present examples of the potential tax burden upon imports. Please note that this calculation is for exemplification purposes only, and should not be used for determining the tax burden for specific transactions.
Import of Goods
|Description||Tax rate (1)||Amounts||Ref.||Formula|
|II||14,00%||14.700||B||A x Tax Rate|
|CIF + II||119.700||C||A + B|
|IPI||0,00%||0||D||C x Tax Rate|
|CIF + II + IPI + ICMS + PIS + COFINS||159.081||E||C + D + F + H|
|ICMS||17,00%||27.044||F||E x Tax Rate (2)|
|PIS and COFINS||11,75% (3)||12.338||H||G x Tax Rate|
|Total Tax Cost||54.081||I||B + D + F + H|
|% of Tax Costs||51,51%||J||(I/A)|
|Total Cost||159.081||K||A + I|
(1) Exemplificative rates
(3) Pis/Cofins rates as established in Law 13,137/2015
Import of Services
|Service Price (Net of Taxes)||100.000|
|Service Price (With 15% IRRF + 5% ISS)||125.000||A|
|Withholding Income Tax (IRRF)||15%||18.750||B||A x Tax Rate|
|CIDE||10%||12.500||C||A x Tax Rate|
|ISS||5%||6.250||D||A x Tax Rate|
|PIS||1,65%||2.386||E||[(A+E+F)*(1+ISS Rate)/(1-PIS rate-Cofins rate)] x Tax Rate (1)|
|COFINS||7.60%||10.468992||F||[(A+E+F)*(1+ISS Rate)/(1-PIS rate-Cofins rate)] x Tax Rate (1)|
|Total Tax Payment||51.2258||(B+C+D+E+F)|
|Effective tax burden||51,26%|
(1) Gross-up method applies for PIS/COFINS calculation bases (effective rate higher than 9,25%).
Please note that the calculation above is solely for illustrative purposes. It can vary according to contractual arrangements and the overall tax position of the involved parties.
Export of goods
Brazilian legislation exempts or charges at 0% the value added taxes on export of goods related to oil and gas operations.
Export and import of services – Filing obligation
The Federal Government has recently created a new system that aims to provide Public Administration with tax and commercial information regarding transactions between entities resident or domiciled in Brazil and entities resident or domiciled abroad. The system is named Integrated System of Foreign Commerce of Services (known as SISCOSERV).
The residents or domiciled in Brazil must register in SISCOSERV any service import or export that produce changes on income.