Creating leverage in the Brazilian tax system

Brazil’s tax system can seem overly complicated – but with the right advice, there are enormous savings to be made


Running a company in Brazil is a challenge that comprises a wide range of different aspects, from cultural diversity to logistical trials, if we consider the country continental in extent. There are some other quite interesting challenges – among them its tax system. By considering it a federal republic, specific taxes are ruled by Federal Government, others are under the rules of the 27 states that form the country and then there are those related to the municipality.

With this structure, a particular aspect must be paid attention to: the tax burden is not equally charged all over the country, reporting important variations between states or cities. For those who are unfamiliar with the Brazilian tax system, it is worthwhile to take a look at the statistics below:

Main federal taxes


Income tax + social contribution

Main state tax


VAT State – charged on goods and products sold (ICMS)

Main municipal tax


VAT State – charged on goods and products sold (ICMS)

But avoid getting enthusiastic. The figures are just a broad-based summary of a complex system with many overcharges and with many distinguished rules. Various tax aspects that are repeated in most countries do not occur in Brazil. For example, consider federal and state VAT, which, with some exceptions, considers physical credit. In other words, the system allows the deduction of some materials physically added to the products or goods sold and some services consumed in the productive process. A long list of special situations is addressed separately and is under very careful analysis when admitting the purchase deductions.

In addition to this list we have the fact that VAT federal and VAT state taxes utilise a gross-up criteria where one is added to the basis adopted to calculate the other, as a kind of “tax cascade”. As an example, in São Paulo, the biggest state in Brazil’s economy, the VAT rate is 18 percent and this is added to the VAT federal basis rate, which is 9.25 percent. At first the result could be 27.25 percent, but according to the gross up criteria, it becomes 37.45 percent. Yet, if we take a look at the tax on services, a municipal duty, the rate is five percent, but with a cumulative peculiarity; adding taxes to each chain stage, and even worse, it becomes unrecoverable when the service is applied to any production process.

Easing complications
It is obvious that, regardless of what the Brazilian tax system comprises, it applies, with all its particularities, to all market competitors equally, in a way that it doesn’t give advantages to certain bodies, at least theoretically. This scenario could lead investors to think that the Brazilian tax system is not competitive because the conditions are equal to all competitors.

It is advisable to keep an eye out for the existence of two other taxation models: Lucro Presumido (assumed profit) and SIMPLES (national simplified tax system). Both of these systems charge taxes in a different way when compared to the mechanism described in the figures above and in certain market segments they do cause difficulties to competitors. They are optional taxation mechanisms, since the two can be used by companies reporting annual revenues of €26m and lower, for the first model and revenues of about €1.2m and lower in the second model.

Some other duties run in parallel: the great majority of the ancillary obligations that are linked to the taxes and the necessity the companies have in managing them raises the costs outrageously, mainly due to the head count required.

According to The World Bank’s Doing Business Group, those in other countries do not spend as much time dealing with tax bureaucracy as they do in Brazil. The average national business requires about 2,600 hours of form filling, registering entries in general ledgers, looking for consultancies, waiting in lines, and so on. For comparison purposes, in Switzerland the average time is 63 hours and in France 132. Because of this unaware investors believe that they need five times as many people to manage their taxes in Brazil as they do in Europe.

[I]t is important to remember that many non-tax aspects should get greater analysis, such as deciding between buying supplies in the local market or getting them abroad

And it is exactly this point that companies like Sevilha Contabilidade – Accounting and Consulting play a remarkable role, by offering efficient solutions and consulting to those investors wishing to get established in Brazil, but are not willing or can’t afford an oversized head count.

Clever economics
Last but not least, it is important to remember that many non-tax aspects should get greater analysis, such as deciding between buying supplies in the local market or getting them abroad: should we have the goods imported and distributed, or produced in Brazil? Or should we export services to Brazil or set a working team locally and have the services rendered there?

A misleading investor may perform an excellent analysis on a specific market, may develop excellent sales and distribution channels, and may have an excellent production cost, but without studying the tax implications of his decisions, there is a great possibility of jeopardising the investment feasibility.

For more than 25 years Sevilha Contabilidade has assisted many companies from many different countries in getting adjusted with the reality of doing business in Brazil, leading our clients to achieve better tax results, as well as to the whole accomplishment of the bureaucratic demands. The main objective is to provide opportunities to the investors, focusing their business needs and as a result, saving 2,600 hours or more unnecessary red tape.

For further information tel: + 55 11 2879 6682 or + 1 646 403 9670, email:, or visit