The Latin American Payments Blog
Expanding your business into Brazil should be an exciting undertaking, and it definitely will be. As the largest market in Latin America, it’s bound to provide you with hundreds of millions of potential new customers and that’s not something you want to miss out on, right? But if you’re going to start doing business there you’ll need to know some important factors, like how you’re going to pay your taxes.
How the Locals Are Taxed
Let’s start by taking a look at how individual people pay taxes in Brazil. First, residents pay taxes on any income that they earn, from anywhere in the world. Those who are non-residents are only required to pay taxes on income that is earned within the country. When determining what taxes need to be paid on the evaluation is on where the person making the payment is from. If they are from Brazil then the income is made in Brazil.
If you are a non-resident of the country then taxes are actually flat at 25% and include no deductions. Of course, this is contingent upon what type of income is being earned. Rental income, for example, is flat at 15%. Residents, on the other hand, pay taxes through withholdings. When it comes to money earned from someone outside of Brazil or through other individuals in Brazil they also make monthly tax payments. These payments are made according to a progressive rate, based on the amount of income brought in and range from earnings of 1,903.99 BRL to 4,664.68 BRL.
Now, this should make it a little easier to understand what’s happening for individuals paying taxes within the country, however, what about the people who run businesses?
Understanding Business Taxes
Now, when we take a look at how to complete business taxes things start to get a bit more complicated. Regularly, in fact, Brazil is considered one of the most complex systems in the world. There are three levels to taxes in Brazil, and beyond this there are a huge number of specificities foreign companies are not used to. To give you an idea of just how complicated: if you printed out all of the Brazilian tax code, you’d have a document that weighs more than an African elephant and taller than famous American basketball player LeBron James. Taxes are also much higher in Brazil, and while the current administration has indicated that they would like to minimize these complexities and costs for the individual and businesses, we haven’t yet seen the result of such campaign promises.
Keep in mind that doing business taxes in any country outside of your own is always going to require some additional education and effort. You’re going to need to do a whole lot of research into the rules and regulations of the country that you’re entering into– to help you get a head start in Brazil, we’ve already compiled for you, so you can jump start your company’s introduction to the BR market.
Types of Taxes in Brazil
First, there are a number of different types of taxes that are done in Brazil. They have federal, state and municipal taxes that are required to be paid. However, it’s important to note, single actions can lead to multiple taxes being applied at the same time and on multiple levels.
Federal taxes include:
- Income tax – Imposto de Renda
- Social contribution on net profits – Contribuição social sobre o lucro líquido
- Import duties – Taxas de importação
- Export tax – Imposto de exportação
- Federal excise tax
- Tax on financial transactions (IOF – Imposto sobre Operações Financeiras)
- Rural property tax – Imposto sobre a propriedade rural
- Contribution to the Social Integration Programme -Contribuição para o Programa de Integração Social
- Contribution to the Social Investment Fund – Contribuição para o Fundo de Investimento Social
- Contributions for intervention in the economic domain – Contribuições para a intervenção no domínio econômico
- Taxes on labor relations – Impostos sobre relações de trabalho
And these are just the ones for the federal government. You’ll also have to take a look at the state taxes, which include:
- Value added tax for goods and services – Imposto sobre o valor agregado de bens e serviços
- Gift and estate tax – Imposto de doação
- Tax on vehicle property – Imposto sobre a propriedade do veículo
And then we add in the municipal taxes that go along with this process, including:
- Service tax – Taxa de serviço
- Real estate property tax – Imposto sobre imóveis
- Real estate transfer tax – Imposto sobre transferências imobiliárias
- Municipal fees – Taxas municipais
Okay, so, if you’re reading through these you can probably tell that you’re not required to pay all of them, but even just paying some of these things can be complicated.
If you are considered a legal entity in Brazil, you will pay an actual flat tax, at 15%. On top of that there’s a 10% additional tax on higher levels of income and there’s the social contributions tax above, which is either 9% or 15%. Not to mention you’ll pay those additional taxes on other types of contributions that are made.
Withholding and Excise Taxes
If you carry out any type of financial transaction and earn income or make capital gains this is actually taken as the same as what a resident would be charged. You would pay the same rates in these cases, but you would then have to pay some of the additional taxes we had mentioned above, including service taxes of up to 5% and contributions to several of the social aspects we had mentioned.
Double Tax Treaties
If you are covered under what’s called a double tax treaty while doing business within Brazil you will actually have entirely different regulations. That’s because the double tax treaty or a multilateral tax treaty will actually override any other tax laws or regulations that take place within the country. As a cross-border corporation you would first need to look for one of these double tax treaties and see what they say about the payments that need to be made.
The information provided above is related to domestic tax laws within Brazil. If you are based in a country on the list below it means that you currently have a double taxation treaty with Brazil and may be able to utilize these rules for taxation rather than the standard.
- Czech Republic
- South Africa
Note that the rules and regulations for each country are slightly different and you would need to look into the convention documents in order to determine the specifics of this process and how you would follow the taxation rules applicable to you.
Are You Required to Pay?
So the question is, are you actually required to pay corporate taxes in Brazil as a cross-border company? Well, that’s going to depend on a few different factors. You’ll need to be a non-resident of the country and your business is not considered a legal entity within Brazil in order to be considered ‘cross-border.’
You would then need to be doing business within Brazil, including selling your products, services, etc. or earning income through other means such as real estate and rental properties. But not all of these are subject to corporate taxes either. You would also need to be carrying out activities utilizing a Brazilian resident as your agent or representative.
That is still not the end of the situation, however. The individual that is carrying out the duties must have some form of power to bind you to the process, or they must be acting on behalf of a domestic branch of your foreign business. If these are the case then you would be subject to the corporate taxes that we’ve discussed so far.
If you have an agent taking care of things on the ground in Brazil but all of your transactions are actually taken care of abroad you are still considered a non-resident and a non-cross-border company. This would mean you are actually not subject to the corporate taxes either. You are not required to pay taxes in Brazil in this case.
Recapping What You Need to Pay
So — we’ve gone through the details of what taxes in Brazil look like, let’s take a bit of a recap on what types of taxes you could be required to pay if you run a cross-border company that does business in Brazil. Assuming the different factors we’ve discussed already all apply to you and you are required to pay taxes at all, you could be subject to:
Income Tax – This is the basic portion of taxation that covers things like your operating profits. It can actually be calculated utilizing actual income or a presumed income.
Withholding Tax – This includes interest (15% for non-residents or 25% for those in tax havens), royalties and technical service fees, each of which are also 15% or 25% for those in tax havens.
Payroll/Social Security Tax – This one only applies if you have actually employees working for your company within the region, which would apply if you have a physical location there.
Real Property Tax – This is also only applicable if you actually set up a business within Brazil, rather than if you’re operating a business from outside as a cross-border company.
Social Integration/Social Security Financing/Other – All of these taxes can still be applied to your business as well, and they’re going to charge smaller amounts between 0.65% up to possibly as much as 11.75%. Each of these are based on income on good and services and can apply to anything that is imported into the country.
What it All Means to You
If all of this is sounding a little bit overwhelming, don’t worry. Taxes are definitely not meant to be simple because everyone wants to make sure that they’re getting their share. Countries, organizations and different government entities want to make sure that they know all about your corporation and they definitely want to know everything there is to know about how much money you make and where they can get it. But how are you going to get it to them? The best way is to let us take care of it.
Going through all of these steps to pay your taxes in Brazil may be making you question whether you even want to expand into the region, but the truth is you can do it a whole lot easier than this. All you have to do is set up payments through our system, which allows you to accept your payments without actually setting up any kind of legal entity. When you do, you’re going to be subject to far fewer tax requirements and a whole lot less complicated system.
How We Can Help
Our job is to make sure that the payments you’re receiving from Brazil are done in a way that makes it much simpler for you to take care of taxes and more. We’ll take care of all the hard stuff and we’ll make sure that you’re not responsible for all of those different types of taxes. After all, your payments are going to come through our service, and that means you’re not actually doing business without the local entity.
Even better, we accept all of the major credit cards and the major payment methods that are used in countries throughout Latin America. That way, you don’t have to worry about losing a potential customer because they don’t have the right payments available. We make sure that you have fewer taxes, fewer complications and more customers. That’s what you’re looking for by expanding into the market after all, right?
Getting involved in Brazil is an amazing opportunity that’s going to put your business in front of millions of people who could potentially benefit, not to mention increase your revenue. But do you want to spend all that more time trying to do your taxes? Or growing your business into an ever expanding market? We know what we’d rather be doing, and that’s why epag is the way to go for all your cross-border needs. We can take care of the hassle and cut down on the mess.