Personal taxation in Rio De Janeiro
Effective personal income tax rate
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Resident individuals are taxed on their worldwide income. Nonresidents are taxed only on income from Brazilian sources.
There is an option for married individuals to file a joint tax return for the household.
No tax is levied on annual income up to BRL 22.499. Tax is levied as follows: (1) 7.5% for income between BRL 22.499 and BRL 33.477; (2) 15% for income between BRL 33.477and BRL44.476; (3) 22.5% for income between BRL 44.476and BRL 55.373 and (4) 27.5% for income exceeding BRL 55.373.
Deductions and allowances
Instead of itemizing deductions, taxpayers may elect the standard annual deduction of 20% of taxable income, up to a maximum of BRL 16,595.
Taxable income includes wages, salaries, bonuses, consulting fees and commissions, premiums, directors’ fees and dividends and interest from foreign sources. It also includes most allowances connected with employment. The formal profit sharing paid by a Brazilian employer to employees is exempt only for INSS and severance fund purposes. Dividends received from local sources are tax exempt.
Capital gains are subject to a flat 15% rate. As noted above, a provisional measure published in September 2015 proposes changes to the tax rates on capital gains.
Other taxes on individuals
Real property tax
See “Real property tax” and “Transfer tax” under “Other taxes on corporations.”
States are authorized to tax inheritances at rates of up to 8%.
Compliance for individuals
Late filing will result in a penalty of 1%, per month of the tax due, up to 20%. A minimum penalty of BRL 166 applies if no tax was due.
Filing and payment
Tax is paid on a monthly basis, either through withholding from salary or by advance payment for the self-employed.
Corporate taxation in Rio De Janeiro
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Resident companies are taxed on worldwide income. A foreign company is subject to Brazilian taxation only if it carries out certain sales activities in Brazil through an agent or representative that is domiciled in the country and that has the power to legally bind the foreign seller, or through a domestic branch of the foreign seller. A representative acting as an agent will not give rise to a taxable presence in Brazil if the final transaction is concluded abroad by the nonresident company.
Taxation of dividends
Dividends received from other Brazilian companies and income derived from premiums received on the issuance of new shares are not included in taxable income.
A corporation is resident in Brazil if it is incorporated in Brazil.
Losses must be segregated as “operating” or “nonoperating.” Nonoperating losses may be set off only against nonoperating gains. Tax losses incurred in one fiscal year may be carried forward indefinitely, but the amount of the carryforward that can be utilized is limited to 30% of taxable income in each carryforward year. The carryback of losses is not permitted.
R&D projects and information technology qualify for some direct assistance and tax relief. An exclusion is allowed from the corporate income tax base of 60% to 100% of R&D project expenses (a provisional measure published on 30 September 2015 would suspend the R&D incentive for calendar year 2016, but the provisional measure has not yet been approved). The IPI on the acquisition of assets is reduced and accelerated depreciation is allowed for R&D assets. Subsidized financing is available to purchase capital goods, invest in infrastructure projects and build ships. Export sectors qualify for duty drawback on imports and for special financing through an export-promotion program. Exporters of manufactured goods are entitled to a tax refund of a percentage of the value of their export revenue, depending on the type of goods exported.
Corporate income tax (IRPJ) is levied on the taxable profits of an entity at a rate of 15%. However, as noted below, taking into account the surtax and the social contribution on net profits, the combined nominal rate is 34%.
Dividends received from other Brazilian companies are not included in taxable income.
In addition to the statutory corporate income tax rate of 15%, a surtax of 10% on income in excess of BRL 240,000 per year is imposed on legal entities and a 9% social contribution tax (CSLL) is levied on adjusted net income. For financial institutions, the CSLL rate is 20%.
Foreign tax credit
A foreign tax credit for qualifying foreign taxes paid is available to offset the IRPJ and CSLL imposed on foreign- source income. Further limitations on the credit include a per- company limitation for foreign subsidiaries (some consolidation of branches and of lower tier subsidiaries is allowed) and a per-country limitation for foreign branches.
The basic income tax applies to operating profits derived by a company in Brazil. Operating profits are defined as gross operating receipts, less the cost of goods sold or services rendered; commercial, administrative and operating expenses; and other charges, reserves and losses authorized by law.
Capital gains are treated the same as ordinary income (subject to restrictions on the offsetting of capital losses against ordinary profits in certain cases).
Other taxes on corporations
Real property tax
The real property tax is collected by the municipality where property is located and is calculated on a deemed “sales price” of the property. The tax rate varies by municipality, but may be estimated in the range of 0.3% to 1.5%.
Employers are required to contribute 8% of wages to each employee’s deferred salary account to the severance fund, as well as 20% of an employee’s wages to the public pension system (National Institute for Social Security or INSS), and a maximum of 8.8% for other social security taxes. In some business sectors, the 20% INSS contribution has been replaced by a contribution levied on gross revenue.
Although not corporate income taxes, the PIS/PASEP (social integration program) and COFINS (tax for social security financing) are federal taxes imposed on gross revenue at rates of 0.65% (PIS) and 3% (COFINS), where a Brazilian entity pays corporate income tax under the deemed taxable income regime.
A real estate transfer tax is due upon the transfer of title to real property (land, buildings). The tax rate is progressive from 2% to 6%, calculated, roughly, on the sales price. The buyer is responsible for payment of the tax.
See "Social security," below.
Compliance for corporations
Late payment of IRPJ and CSLL is subject to penalties and interest.
While there is no advance tax ruling system, Brazil allows formal consultations on the application of tax laws to the taxpayer's specific facts. The resulting decisions are binding on all taxpayers, with the possibility of an appeal depending on the existence of inconsistent separate decisions, in which case an affected taxpayer may request a final statement that binds all taxpayers that have received decisions on the same facts/law.
Every business entity in Brazil (including corporations, partnerships, branches and agencies of companies domiciled abroad) must file an annual income tax return for the previous calendar year by the last working day of June. Corporate taxes (IRPJ and CSLL) usually are due on annual adjusted profit, with monthly advance payments; excess tax paid is available to offset future taxes.
Other taxation in Rio De Janeiro
Value added tax
Filing and payment
IPI and ICMS are paid monthly. ICMS filing is on a monthly basis.
The IPI rates depend on the type of product, at an average rate of 20%. The ICMS is levied at rates ranging from 4% to 25%.
Brazil operates a multiple rate system, with tax levied at the federal, state and municipal levels. IPI is a federal excise tax levied on the manufacture of goods and the import of goods into Brazil. Exports are exempt. ICMS is a state VAT levied on the circulation and import of goods and the provision of interstate and intermunicipal transportation and communications services.
IPI and ICMS calculations must be kept in proper fiscal books.
Controlled foreign companies
Profits earned by CFCs and certain foreign affiliates (noncontrolled subsidiaries) of Brazilian entities are included in the base for calculating the IRPJ and CSLL liability of the Brazilian controlling or parent company.
Brazil’s transfer pricing rules apply only to cross- border transactions between related parties and transactions with entities located in tax haven jurisdictions. The rules deviate substantially from the OECD transfer pricing guidelines; they do not adopt the arm’s length principle, but use fixed margins to calculate the transfer price. The rules also provide that interest derived from a cross-border loan is subject to certain limits, regardless of whether the loan agreement is registered with the Brazilian central bank. The limits vary depending on the type of currency adopted, type of interest (fixed or variable), etc., and take into account market rates and a spread to be determined by the Minister of Finance.
Under the thin capitalization rules, interest paid to related parties that are not located in a tax haven jurisdiction and that do not benefit from a preferential tax regime may be deducted on an accruals basis for corporate income tax purposes only if (i) the expenses are necessary for the company’s activities, and (ii) both of the following thresholds are met: (a) the related party debt-to-equity ratio does not exceed 2:1, calculated based on the proportion of related party debt to direct equity investment made by related parties; and (b) the overall debt-to-equity ratio does not exceed 2:1, calculated based on the proportion of total debt to total direct equity investment made by related parties.
General anti-avoidance rules apply. Under the rules, any amount paid, credited, delivered, used or remitted directly or indirectly to an entity or individual incorporated or resident in a tax haven jurisdiction or benefiting from a preferential tax regime may be deducted only if the taxpayer can identify the beneficial “recipient” of the proceeds; provide proof that the entity or individual has the operational capacity to carry out the transaction for which the payment is made; and submit documentation showing the purchase price paid and the receipt of the goods, rights or the use of services. (See above under “Transfer pricing” and “Thin capitalization” for additional rules specific to interest payments.)
No withholding tax is imposed on dividend distributions to a nonresident that are paid from profits earned as from 1 January 1996. As from calendar year 2015, dividends will be determined based on IFRS.
Technical service fees
The general withholding tax rate on technical service and technical assistance fees, administrative assistance and similar payments to nonresidents is 15%, unless the rate is reduced or eliminated under a tax treaty. Payments for technical services that do not involve the transfer of technology are subject to a 25% or 15% withholding tax. The CIDE also is imposed at a rate of 10%.
Interest paid to a nonresident generally is subject to a 15% withholding tax unless the rate is reduced under a tax treaty. The rate is 25% if the recipient is resident in a tax haven.
The general withholding tax rate on royalty payments is 15%, unless the rate is reduced under a tax treaty. The Contribution for the Intervention in the Economic Domain (CIDE) also is imposed at a rate of 10%.
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