Tax and Customs

Brazil has a convoluted tax and customs system. Although things have been materially improving in the last several years, according to the World Bank’s Doing Business publication, Brazil still ranks as the country where it takes the largest number of hours for taxpayers to pay taxes. This does not mean, however, that the tax authorities and tax laws are unsophisticated. For instance, Brazil’s Federal Revenue Department has already adopted blockchain technology for certain purposes and this is expected to be expanded.

Many were new to Brazil underestimate the difficulties involved with dealing with Brazilian customs.  For those looking to set up a company (or enter into risk-sharing arrangements), have a good grasp of corporate taxes is important. Also, many misunderstand the extent to which taxes searchers IOF affect international loans and remittances. However, it is the complexities involved in calculating taxes on the importing of services, intellectual property rights and goods that generally confuse foreigners (and Brazilians!) the most. Some capital gains obtained by foreigners are taxed. To add to the difficulties, a few of these rules may be changed by the terms of the few double taxation agreements in force in Brazil and more compliance issues are likely to come up as Brazil is implementing OECD’s base erosion and profit sharing measures (BEPS).

Brazil also has its own transfer pricing rules (although this is to change soon) and complex concepts of tax immunities, non-levying, exemptions and zero-rating. Often, tax-related liability is joint and several and, in some circumstances, government debts can be purchased from other creditors to pay tax debts.

Non-compliance with tax and customs laws usually lead to hefty sanctions.

Brazil’s customs procedures are very formalistic and Brazilian bureaucrats are rarely willing to deal fairly with mistakes contained in documents. Documents should be meticulously prepared to avoid problems. Due to the intricacies of the Mercosul Classification of Goods (Nomenclatura Comum do Mercosul, “NCM”), finding the right classification of goods is often fraught with risks. As an example of how harsh Brazilian customs’ laws can be, a 10% fine over the customs value of the imported merchandise will be imposed where a commercial invoice is not stamped by consular authorities (when required) prior to being presented to customs – and this is likely to apply even if the taxpayer made the mistake in good faith.

Long delays will ensue as a consequence of the slightest mistake in complying with formalities and hefty penalties will be applied by the authorities.

To avoid classification issues, it is not unusual for parties to seek a private tax ruling prior to the goods arriving in Brazil to avoid being fined. When goods are held up by customs the importer has the option of filing for a court injunction to enable the goods to clear customs.

Due to the notorious complexity and uncertainties involving Brazil’s tax rules, and the often erroneous interpretation of the rules by Brazil’s tax authorities, litigation is common (and, in most cases for large businesses, inevitable).

Taxes on profits of legal entities registered in Brazil

(a) Corporate Income Tax (“IRPJ”)

Corporate income tax (imposto de renda das pessoas jurídicas, “IRPJ”) is a federal tax levied on income received by legal entities registered in Brazil. It is generally assessed at 15%, plus a 10% supplementary tax for a company’s income over R$20,000 in a month. IRPJ is calculated in accordance with one of the following methods:

  • the actual profit method; and
  • the deemed profit method.

The actual profit method uses the actual profits made (revenues less deductions) by the company to calculate its income and CSLL, while the deemed profit method deems a percentage of the company’s gross revenues as its profits (regardless of the actual profits made by the company). The actual profit method is substantially more compliance and labour-intensive than the deemed profit method. For the sake of completeness, there is a third rarely adopted method called the arbitrated method where the tax authorities calculate profits based on deemed margins on gross revenues. 

For most companies that apply the deemed profit method, the following percentages of revenues will be deemed to be the company’s profits for IRPJ purposes:

  • 8% of the revenues obtained from the sale of goods, sale of real estate, and construction and rural activities; and
  • 32% of the revenues obtained from the provision of services (which includes, according to the latest ruling from the Federal Revenue Department, the sale and licensing of software).

Specific percentages apply to companies with revenues lower than R$120,000, for certain types of services (such as transportation services) and on the sale of fuels to retail customers, among others.

In addition to the deemed revenues, capital gains and profits calculated in accordance with transfer pricing rules will be taxed.

The most tax-effective method will generally depend on the level of income expected and the type of services, goods all intellectual property rights the company will be supplying. However, companies with a turnover of more than R$78 million in a given year (or R$6.5 million per month, if the company has been trading for less than 12 months) must adopt the actual profit method in the following year.

(b) Social Contribution on Net Profits (“CSLL”)

Social contribution on net profits (contribuição social sobre o lucro líquido, “CSLL”) is a federal contribution levied over the company’s profits (calculated under the deemed profit method or the actual profit method). The CSLL rate is generally 9%.

For most companies that apply the deemed profit method, the following percentages of revenues will be deemed to be the company’s profits for CSLL purposes:

  • 12% of the revenues obtained from the sale of goods; and
  • 32% of the revenues obtained from the provision of services (which includes software sales and licences).

As with IRPJ, certain activities are subject to specific rules. Also, capital gains and profits calculated in accordance with transfer pricing rules are added to the profits subject to assessment.

Under Law 13,202/2015 CSLL is to be regarded as being within the scope of Brazil’s double tax agreements even if agreements were made prior to CSLL being introduced.

(c) Program for Social Integration (“PIS”) and the Contribution for the Financing of Social Security (“COFINS”)

PIS and COFINS are two separate taxes but their rules are virtually identical, so they are generally treated as one.

For those companies that opt for the deemed profit regime, PIS and COFINS are levied on a company’s gross revenues at 3% and 0.65%, respectively (3.65% in total). There are exceptions that apply for the calculation basis of PIS and COFINS, such as on the capital gain obtained from the sale of capital goods treated as investment, fixed assets or intangible assets in the company’s books.

For those companies that adopt the actual profit regime, PIS and COFINS operates like a value added tax, being levied on most supplies at 9.25%, with a system of debits and credits (there are various exceptions, including financial revenues obtained by the company, which are taxed at 0.65% and 4%, respectively, for PIS and COFINS). 

Tax on Foreign Exchange Transactions, Loans and Financial Transactions (“IOF”)

IOF is levied on Brazilian currency purchased or sold, securities sold or purchased, loans and similar transactions, as well as over insurance premiums.

The IOF rate for foreign exchange transactions applies to some international remittances and it is set at 0.38% over the value of the currency exchange transaction (the amount in Brazilian reals of the foreign currency being purchased). If the foreign exchange transaction is made by credit card, then the rate is set at 5.38%.

Among other exceptions, foreign exchange transactions carried out for converting a foreign direct investment into the acquisition of shares traded in the Brazilian stock market are subject to a 0% IOF rate. In September 2022 the zero rate was also extended to publicly distributed loan securities issued by non-financial institutions.

Specific rates for IOF-Credit will apply to the following transactions when made by financial institutions: (i) loans with not defined and predefined principal borrowed amounts; (ii) off-setting of receivables; (iii) advance payment to the applicant; (iv) loans and financing arrangements where funds are borrowed in instalments; (v) exceeding credit limits; and (vii) financing of non-residential real estate.

Taxation of services supplied from abroad

A different regime applies to the taxation of services provided by foreign companies as compared to Brazilian companies providing services domestically. Applicable taxes will vary in accordance with the type of service provided as well as the location where the service will be provided.  Software as a service (SaaS) arrangements are generally taxed as a service (see further here).

(a) Withholding Income Tax (“IRRF”)

Withholding income tax (imposto de renda retido na fonte, “IRRF”) is a federal tax levied on income paid, credited, remitted or delivered to non-residents, at the rates of 15% or 25% depending on the nature of the income and the jurisdiction where the payee is located. Where the Federal Revenue Department regards the jurisdiction of destination as a tax haven, or the type of entity is included in the privileged tax regime list (check the applicable regulations for both lists), then the IRRF rate will be 25% in all cases.

(b) Tax over Services (“ISS”)

Tax over services (imposto sobre serviços, “ISS”) is a municipal tax that is levied on revenues received from the provision of certain services and intellectual property rights. It applies to almost all services provided within Brazil or to Brazilian business or individuals from abroad. The ISS rate varies between 2% to 5% and is assessed on the company’s gross income. Unlike most taxes, no deductions or tax credits apply. 

Complementary Law 157/2016, which came into force in the first quarter of 2017, extended the scope of the ISS Law to the streaming of videos, songs, texts, as well as the provision of cloud storage of documents, among other services.

The law of each Brazilian municipality where the services are being supplied needs to be analysed to ascertain whether the specific service is taxed and the rate applicable.

(c) PIS-Import and COFINS-Import

PIS-Import and COFINS-Import are federal levies imposed on the payment for services supplied from abroad (as well as on the importing of goods – see further below).

Where the services are supplied from abroad, the combined PIS-Import and COFINS-Import rate will be set at 9.25%.

On the importing of services or intellectual property rights, PIS-Import and COFINS-Import are assessed on the value of the payment, credit, delivery or remittance to the foreign supplier (before withholding income tax).

Various exemptions may apply on the application of PIS-Import and COFINS-Import. The application of these exemptions needs to be considered on a case-by-case basis.

PIS-Import and COFINS-Import credits are generally available, but specific conditions and exceptions apply.

(d) Contribution on the Intervention on the Economic Domain (“CIDE”)

The contribution on the intervention on the economic domain (contribuição de intervenção no domínio econômico, “CIDE”) is a federal levy assessed on amounts paid, credited, delivered or remitted abroad for the payment of royalties (other than for the licensing of software, unless there is a technology transfer agreement registered with the INPI) and certain services. The rate is currently set at 10% and is payable by the company making the remittance. CIDE applies to:

  • the supply of technology;
  • the provision of technical assistance (support and specialised technical services), where there is transfer of technology;
  • administrative and similar services;
  • the transfer and licensing of trade marks;
  • the transfer and licensing of patent explorations.

CIDE may be reduced to zero for companies operating in the semiconductor sector.

In some circumstances, imputation credits may be allowed as deductions of CIDE paid by the importer. Although called a “contribution”, CIDE operates much the same way as IRRF. In some jurisdictions, the CIDE withheld by the Brazilian payer might allow for an offset against the service provider’s income tax under reciprocity principles. This requires an analysis of the laws of the jurisdiction where the service provider is located.

(e) Summary of applicable taxes on imported services

Note that where the services classified under different headings, the invoice should clearly describe classification and the value or otherwise it will be classified at the least beneficial classification.

Type of Service Tax Rate Note
Administrative and technical services (including maintenance and support) IRRF 15% If services are provided from a tax haven, the rate is 25%
PIS-Import and COFINS-Import 9.25% Levied on the full amount being remitted or credited abroad
CIDE 10% Levied on the full amount being remitted or credited abroad
ISS 2% to 5% Needs to be checked at the Municipal level
IOF 0.38% (if paid through wire transfer) or 5.38% (if paid via credit card) Levied on the full amount being remitted or credited abroad
Other services (general rule) IRRF 25% Levied on the full amount being remitted or credited abroad. However, there are various exceptions (for instance, market research for exporting Brazilian products is set at 0%), so this should be checked before making any pricing decisions
PIS-Import and COFINS-Import 9.25%
ISS 2% to 5% Needs to be checked at the Municipal level
IOF 0.38% (if paid through wire transfer) or 5.38% (if paid via credit card) Levied on the full amount being remitted or credited abroad

(f) Exemptions

Some services are exempted from one or more of various taxes imposed on the importing of services. For instance, fees and commissions charged by foreign agents and representatives appointed exclusively for seeking and brokering foreign sales of products and services of Brazilian companies are not subjected to withholding income tax, unless they are based in a tax haven. A recent Federal Revenue Department Private Ruling found that the fees and commissions are also not subject to PIS-Import and COFINS-Import, but that was found not to be the case in another Private Ruling issued just 1.5 years earlier.

Each service needs to be analysed in detail for an accurate assessment of the taxes payable.

Taxation of IP rights supplied from abroad (and SaaS)

Intellectual property rights licensed by Brazilian companies or individuals are subject to various different taxes. These are largely the same taxes as those levied on services yet applied differently.

(a) Software

The taxation of software is very complex. Where the software is supplied as a licence, then the better view was that the supply will be subject to IRRF, CIDE and ISS only, plus IOF applicable on the transfer of the funds. However, in June 2023 the Federal Revenue Department issued a ruling finding that PIS/COFINS-Import applies to all software licences

As this is a constantly changing area of the law, it is essential to seek advice prior to making any pricing decisions.

Importantly, some Municipalities set the ISS rate at 2% where the software is customised in the Municipality itself while keeping the 5% rate for imported customisable software or for SaaS. As there are over 5,500 Municipalities in Brazil, care should be taken before making final pricing decisions.

Type of IP right




Licensed software


15% (the licensor is based in a tax haven, the rate is 25%)

Levied on the licence fees (royalties)


2% to 5%, depending on the Municipality

PIS-Import and COFINS-Import



0.38% (if paid through wire transfer) or 6.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Software as a service (SaaS)



Levied on the full amount being remitted or credited abroad



PIS-Import and COFINS-Import



2% to 5%, depending on the Municipality

Levied on the “price of the service”


0.38% (if paid through wire transfer) or 6.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Printed and downloadable books


No taxes are payable

Immunity under the Federal Constitution


0.38% (if paid through wire transfer) or 6.38% (if paid via credit card)

Despite immunity under the Federal Constitution, the federal tax authorities continue to levy IOF on these transactions

Trade mark licences



If the licensor is based in a tax haven, the rate is 25%



Levied on the full amount being remitted or credited abroad



Needs to be checked individually depending on the Municipality (also, the validity of charging ISS over trade mark licences is currently before the Federal Supreme Court) 


0.38% (if paid through wire transfer) or 6.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Patent licences



If the licensor is from a tax haven, the rate is 25%



Levied on the full amount being remitted or credited abroad


0.38% (if paid through wire transfer) or 5.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Franchise licences



If the licensor is from a jurisdiction deemed to be a tax haven, the rate is 25%

PIS-Import and COFINS-Import

Not levied

Not applicable



Levied on the full amount being remitted or credited abroad



Actual rate depends on Municipal laws


0.38% (if paid through wire transfer) or 5.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Know-how “technology” licences



If the licensor is from a tax haven, the rate is 25%



Levied on the full amount being remitted or credited abroad


0.38% (if paid through wire transfer) or 5.38% (if paid via credit card)

Levied on the full amount being remitted or credited abroad

Taxation of goods imported from abroad

(a) Import Duty

Import duty (Imposto de importação) is levied on imported goods, depending on the type of product and number of items being imported. Import duty rates vary substantially, generally ranging from 2% to 35% on the value of the goods (where ad valorem duty applies).

These rates are based on the Common External Tariff (Tarifa Externa Comum, “TEC”) which is Mercosul’s commonly agreed import duty.

Most goods from other Mercosul countries, and many goods as its associate members, may be imported free of import duty. Note that there are many exceptions to these rules.

Apart from that, Brazil is also a member of the Latin American Integration Association (“ALADI”) and through ALADI Brazil has been bound by multiple partial trade agreements known as Acordos de Complementação Econômica and Acordos de Alcance Parcial with its Latin American partners. The result is lowered import duties which do not circumvent its obligations within Mercosul. From a Brazilian standpoint, the biggest partners in Latin America are Argentina and Mexico. Argentina is a complementary economy to Brazil owing to close and solid relationships deriving from Mercosul statutes.

Furthermore, as a member of Mercosul, Brazil benefits from trade agreements with Israel, India and SACU (South African Customs Union whose members are South Africa, Botswana, Lesotho, Namibia and Swaziland).

(b) Industrialised Products Tax (“IPI”)

Industrialised products tax (imposto sobre produtos industralizados, “IPI”) is a federal tax generally imposed on the production or importation of certain industrialised goods. Rates are assessed on the value of these goods and vary in accordance with the nature of the merchandise. On average, IPI is levied at rates between 5% and 18%.

IPI has a system of credits and debits.

IPI rates are found in a detailed table that is similar to Mercosul’s TEC. The definitions, however, are not exactly the same and care should be taken to ensure that the correct code is used.

(c) PIS-Import and COFINS-Import

In addition to being a tax imposed on the payment for services supplied from abroad (see above), PIS-Import and COFINS-import are Federal taxes levied on the importing of goods.

On the importing of goods, the PIS-Import and COFINS-Import are assessed based on the customs value. PIS-Import and COFINS-Import rates are 2.1% and 9.65%, respectively, for most goods (it goes as high as 20% for beauty and personal care products). Various goods are exempt, so each good being imported needs to be carefully classified under the Common External Tariff and the IPI table.

(d) State Tax Over the Movement of Goods (and Certain Services) (“ICMS”)

The tax over the movement of goods and services (imposto sobre a circulação de mercadorias e serviços, “ICMS”) is a State tax levied on certain merchandise, communication services, electricity and the transportation of goods. Imported merchandise is also subject to ICMS.

ICMS is a value-added tax and, to some extent, it works somewhat like the VAT in Europe (or the GST in Australia and New Zealand). Rates generally vary between 7% to 25%, but there are major reductions and increases depending on the type of good or service involved. Interstate rates generally vary from 7% to 12% (depending on the state and where the goods will be sold).

Where ICMS is payable on the importing of goods, the following formula applies (the ICMS itself is considered as part of the formula). The formula below assumes ICMS at be levied at 18%:

ICMS = (T ÷ 0.82) × 0.18


T = (VA + II + IPI + PIS-Import + COFINS-Import + IOF + CIDE + AFRMM + customs expenses)

  • VA = customs value;
  • II = amount of import duty payable;
  • IPI = amount of IPI payable;
  • PIS-Import = amount of PIS-Import payable;
  • COFINS-Import = amount of COFINS-Import payable;
  • IOF = amount of IOF payable;
  • CIDE = amount of CIDE payable;
  • AFRMM = amount of AFRMM payable (see below); and
  • customs expenses = customs expenses paid or payable in Brazil.

Because of the way ICMS is calculated on imports, its effective rate will be much higher than the customs value of the merchandise, so care should be taken when making pricing decisions.

(e) Additional to Freight for the Renovation of Merchant Shipping (“AFRMM”)

The additional to freight for the renovation of merchant shipping (“AFRMM”, from the Portuguese original) is a tax levied on imports entering Brazilian territory by sea. The tax was created to recover the Brazilian naval industry and to support the development of the merchant shipping.

The AFRMM is assessed at the rate of 25% over the international freight amount declared in the shipping documents for long distance sea transport; 10% for coastal transport and 40% for the river and lake transportation of liquid goods in bulk when carried to the North and North-eastern regions of Brazil.

Some goods are exempt from the payment of AFRMM. These include cargoes of books, newspapers and periodicals, as well as their printing paper; cargoes transported by vessels, domestic or foreign, when not used for commercial purposes and exploration activities.

Imports from Mercosul members and associate members are exempt from the payment of AFRMM.

(f) Tariff Exemptions for Capital Goods, and Technology and Telecommunications Items

Importers may be able to obtain major reductions or full exemptions of import duty (and, in some cases, ICMS) when purchasing capital goods, and telecommunication and information technology items from abroad where no similar products are manufactured in Brazil. These are known as ex-tarifários.

Specific procedures for obtaining the reductions apply – an application must be made to the Federal Chamber of International Trade and to the relevant State Chambers of Commerce where the goods are to be used.

(g) Summary of likely applicable taxes on imported goods

Considering the various variables involved in importation of goods, examples of calculations of the applicable taxes may be misleading. However, as a “rough” guide, the taxes likely to apply to the importing of foreign goods and their respective rate ranges (ad valorem) are as follows:

Import duty Between 0% and 35%, calculated over the customs value
IPI Between 0% and 30%, calculated over the customs value plus the import duty paid
PIS-Import and COFINS Import 11.75% (up to 20% in some cases, but many exceptions apply)
ICMS 12% to 25% – see ICMS formula

Taxation of capital gains obtained by foreign companies or non-resident individuals

Foreign companies that obtain capital gains arising from the sale of any assets or rights in Brazil will be subject to IRRF on a progressive basis, as follows:

  • 15% if the capital gain is up to R$5 million;
  • 17.5% if the capital gain is more than R$5 million but no more than R$10 million;
  • 20% if the capital gain is more than R$10 million but no more than R$30 million;
  • 22.5% if the capital gain is more than R$30 million.

If the foreign company is based in a tax haven, the rate will be a flat 25%.

If the buyer is a Brazilian company or resides in Brazil, then the buyer will withhold the amount of tax payable by the foreign seller. If the buyer is a foreign entity or a non-resident, the person who holds the power of attorney will be bound to withhold the amount of tax payable.

Foreign investors that trade shares in the Brazilian Stock Exchange (B3) are exempt from all capital gains tax.

Double taxation agreements

Brazil has double-taxation agreements with Argentina, Austria, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Ecuador, France, Finland, Hungary, India, Israel, Italy, Japan, South Korea, Luxembourg, Mexico, the Netherlands, Norway, Peru, the Philippines, Portugal, Russia, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Trinidad and Tobago, Turkey, the United Arab Emirates, Ukraine and Venezuela. In late November 2022, Brazil signed a double tax agreement with the United Kingdom but it is not yet in force.

Note that not all of these agreements still in full force. Some of them only apply in some specific circumstances. The agreement with the Netherlands is probably the most oft-used of them in international tax structures.

OECD’s base erosion and profit sharing (“BEPS”)

In 2013, the OECD and G20 countries began negotiating a prescriptive legal framework to be implemented in the members’ jurisdictions to prevent loopholes available to multinational enterprises. As a consequence, the OECD Convention on Mutual Administrative Assistance in Tax Matters came into force in Brazil on 29 August 2016.

Brazil is one of more than 55 countries registered for automatic exchange of tax information over companies and persons found in their jurisdictions. It has undertaken to commence exchanging information with other members of the convention from 1 September 2018 (relating to the 2017 tax year). The information includes:

  1. details about subsidiaries operating in Brazil or elsewhere;
  2. where the corporate group has its main seat as well as corporate commercial activities in all jurisdictions where it operates;
  3. the globally-considered allotment of the group’s income;
  4. the globally-considered allotment of paid taxes and due taxes;
  5. all companies sitting under the corporate group umbrella and their respective economic activities; and
  6. other information.

Moreover, from 2017 corporate groups whose assets globally are valued more than BRL2.26 billion will be obliged to present a report of its activities, shareholders, holdings, subsidiaries abroad, as well as other information, based on the fiscal year of 2016. Brazil has also adopted the common reporting standard (CRS) of financial account information.

Transfer pricing rules

Transfer pricing rules apply to related entities and transactions with entities in tax havens – transfer pricing rules aim to ensure that these companies transact with each other on an arm’s length basis. Brazil is not yet a member of the OECD (although it is actively seeking membership) yet its transfer pricing rules now follow the OECD Transfer Pricing Guidelines.

You can find further information about the recent changes here.

Immunities, non-charging, exemptions and zero-rating

Brazilian taxation law differentiates between immunities (imunidades), exemptions (isenções), non-charging (não-incidência) and zero-rated (alíquota zero) classifications.

Immunities relate to taxes that cannot apply due to provisions set out in the Federal Constitution. These apply to the taxation of religious temples, assets, income or services of political parties, trade unions, educational and non-profit organisations and on the sale or importing of books and paper to be used for the printing of books.

Importantly, it also applies to the taxing of different entities which make up the Brazilian Union: the federal Union, States and Municipalities cannot impose taxes on one another, insofar as these taxes relate to assets, income or services. Government entities are likely to be able to avoid payment of the other federal entities’ taxes (for instance, when supplying goods to a Municipality, for as long as the goods are to be incorporated as part of that Municipality’s assets, then no federal taxes are likely to be payable – although some of the contributions may be). This can be of benefit to New Zealand companies looking to supply goods and services in international tenders put out by Municipalities, States and the Union.

Non-charging relates to those transactions where the elements required to trigger a tax event do not occur. Taxes can only be imposed when all elements which make up a taxable event are met. When they do not, the tax cannot be imposed.

Exemptions assume that a tax exists and that it would be charged in a particular set of circumstances. But for the exemption being set out in the law, the tax would have been imposed in those circumstances. The taxpayer has the burden to show that the conditions set out in the law for the exemption to apply are met.

Finally, zero rating relates to imposing a rate of nil where the company would otherwise meet the requirements to be taxed. A taxable event occurs but no tax is imposed as the rate is set at zero.

Joint and several liability

Under Brazilian law, it is not uncommon that both parties to a transaction be jointly and severally liable for tax obligations arising from that transaction. For instance, banks may be held liable if the proper taxes are not paid on certain international remittances.

Directors of companies as well as shareholders are also often found personally liable for tax debts incurred by the company itself. There is no sure way of avoiding this liability, however, risks can be minimised by undertaking audits and seeking evidence that other parties to transactions are compliant with their tax obligations.

“IOUs” by governments (precatórios)

Under Brazilian law, and the Union, States and Municipalities are allowed to pay debts over 60 minimum wages (approximately R$50,000) in 10 annual instalments, rather than as a lump sum, as a consequence of a judgment. These “IOUs” are called precatórios.

While the federal precatórios have generally been paid on time or with a one to two-year delay, States have been notoriously slow in complying with their obligations – there are states where some judgment debts have not been paid in over a decade. Therefore, it is recommended that utmost care be taken when effecting tax payments, as overpayments may take many years to be recovered.

There is even a secondary market for precatórios, as these may be used for setting off tax debts of other parties in specific circumstances.

Sanctions for non-compliance with tax obligations

Brazilian law provides for many sanctions in the case of non-compliance. Sanctions vary from the imposition of hefty fines and seizure of imported goods to imprisonment terms, depending on the gravity of the offence.

Often, the first practical consequence of any non-compliance with deadlines and tax payments is that the company’s tax number (Cadastro das Pessoas Jurídicas, “CNPJ”) appears as non-compliant on the Municipal, State, and/or federal database. This prevents companies from applying for seeking credit, setting up bank accounts and entering into contracts with many businesses (it is common that more sophisticated businesses request evidence that the company has no outstanding tax debts).

Penalties include a 75% fine over the amount of taxes owed for simple non-payment (increased to 112.5% if the company does not provide information to the tax authorities when requested to do so) and 150% where fraud is proved (increased to 250% if the company does not provide information to the tax authorities when requested to do so), as well interest at 12% per year (in addition to having the debt adjusted to inflation) and up to 20% for simple lateness in payment – among other sanctions.

Therefore, retaining a careful and skilled accountant is especially important in Brazil. However, note that mistakes are to be expected as even the best professionals find it difficult to keep up with the constantly changing rules and the interpretation given to them by the tax authorities.


Contact me if you would like further information. My firm is ready to assist you.