Corporate Tax Comparative Guide

1 Basic framework

1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?

Brazil has a vast and complex taxation system, comprising federal, state and municipal taxes. The number of taxes and governmental levies is extensive. Although the government and the Congress are attempting to simplify and streamline taxation in Brazil, an extensive body of tax regulations remains in force. The main taxes are as follows:

Federal taxes: income tax (individuals, corporate and withholding); social contribution on net profits (CSLL); import duties; export tax; federal excise tax; tax on financial transactions; rural property tax; contribution to the Social Integration Programme (PIS); contribution to the Social Investment Fund (COFINS); contributions for intervention in the economic domain; and certain taxes on labour relations. State taxes: value added tax on goods and services; gift and estate tax; and tax on the property of vehicles. Municipal taxes: service tax; real estate property tax; real estate transfer tax; and municipal fees. Some of these taxes may be calculated using different methods, depending on the tax regime, the taxpayer or the nature of the triggering transaction.

1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?

The corporate income tax rate for Brazilian legal entities is 15%. A surcharge of 10% is applicable for taxable income exceeding R$240,000 (US$65,000) per year or R$20,000 (US$5,400) per month in case of base periods shorter than one year (the acronym 'IRPJ' designates both the corporate income tax and its surcharge). CSLL is generally due at a rate of 9%, or 15% for financial institutions and insurers.

Legal entities are also subject to social contributions on gross revenue of any kind, with a few exceptions provided for in the tax legislation (PIS and COFINS). Depending on the system of taxation adopted by the taxpayer, these contributions may be levied at a combined rate of 9.25% or 3.65%.

1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?

The Brazilian tax system is made up of several different taxes, each with its own tax base.

IRPJ and CSLL, for instance, are levied on corporate income and may be calculated under two main systems. The first is the real profits system, whereby IRPJ and CSLL are computed on adjusted net income. The second is the deemed profit system, whereby IRPJ and CSLL are levied on a percentage of gross revenues that varies in accordance with the activities carried out by the legal entity.

Regarding the social contributions on gross revenue, under the non-cumulative system, these contributions are levied at a combined rate of 9.25% and the taxpayer is allowed to register specific tax credits. Under the cumulative system, the contributions are levied at a combined rate of 3.65% without any right to discount credits.

Another example concerns state and municipal value added tax (ICMS and ISS), which are levied on the price of the transaction indicated in the corresponding invoice.

1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?

Not under the real profits system, whereby all kinds of income (eg, gains, financial income) are included in the ordinary taxable income of the legal entity in the relevant period. If the costs and expenses incurred in a specific period exceed the revenue (including the revenue derived from the sale of shares), no income tax will be payable. Exceptions to this rule are dividends received from Brazilian entities, which are exempt from taxation, and income derived from activities carried out in the SUDAM (Superintendency for the Development of the Amazon) and the SUDENE (Superintendency for the Development of the Northeast region) regions.

Under the deemed profit system, legal entities must divide their income into the corresponding categories. Gross revenue derived from business activities is taxed under the so-called 'presumption percentage', which means that a specific percentage provided by law is applied in order to assess the taxable income. Other income derived from gains, financial transactions and so on must be added to the taxable income, and the IRPJ and CSLL rates are applied to this sum.

1.5 Is the regime a worldwide or territorial regime, or a mixture?

IRPJ and CSLL are levied on a worldwide basis. The profits of branches of Brazilian companies, and of foreign controlled or affiliate companies, are subject to taxation on 31 December of each calendar year, irrespective of distribution. Other income and gains earned directly by a Brazilian company abroad (eg, income or gains derived from financial investments) are also subject to taxation on 31 December.

Taxes paid abroad on profits, income and capital gains can generally be offset against IRPJ and CSLL, up to the limit of the Brazilian tax charged on such profits, income and gains.

The source of the income is generally not relevant in determining the applicable tax, with a few exceptions such as governmental subsidies to encourage the establishment and expansion of economic enterprises and governmental donations, as provided by the law.

1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?

Tax losses may be carried forward indefinitely, provided that the offsetting does not exceed 30% of the taxable profits in any given period. Tax losses may not be carried back. Generally, non-operating tax losses (ie, negative results from the disposal of permanent assets) may only be offset against non-operating profits, subject to the 30% limit.

Tax losses accrued by foreign controlled or affiliate companies cannot be offset against profits accrued in Brazil. However, they can be offset indefinitely against the taxable income of the foreign controlled or affiliate company.

1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?

Except for the purposes of the Brazilian thin capitalisation rules, Brazil has not incorporated the concept of beneficial ownership. Thus, for all tax purposes, the legal owner is deemed to be entitled to an asset and/or income. However, where there is evidence of fraudulent conduct to reduce taxation, the authorities may disregard the formal owner to reach the person that actually incurred a taxable gain.

1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?

According to the equitable taxation principle, whenever possible, taxes are personal and are graduated according to the economic capacity of the taxpayer. The progressive rates applicable to individuals (from 0% to 27.5%) are an example of a mechanism used by law to grade taxation according to the taxpayer's capacity. For legal entities, the law provides for the imposition of an additional 10% of IRPJ on legal entities whose monthly profits exceed R$20,000.

1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?

As a rule, only legal entities are subject to corporate taxation. However, in certain circumstances Brazilian law allows certain individuals and activities to be treated as legal entities for the purposes of corporate taxation. Examples include the following:

legal entities which perform their activities in Brazil, whether regularly or irregularly incorporated; branches, representations, commission merchants and agents appointed by foreign companies, as provided by the law; single-person legal entities, as defined by the law; cooperatives formed with the sole purpose of purchasing and supplying goods to consumers; and silent partnerships (SCPs) (the ostensible partner must calculate the taxable profits of the SCP separately from the taxable results of other business it performs, and tax losses accrued by the SCP cannot be offset against the taxable profits of the ostensible partner).

2 Special regimes

2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?

Free trade zones: In Manaus Industrial Park, the government grants land for a nominal value, with available infrastructure such as water supply and water and sewage treatment, urban transportation and telecommunication facilities; Regional development incentives: Enterprises in the Northeast and in certain states in the Midwest and Southeast can benefit from federal, state and municipal benefits; Benefits granted for the export of goods and services; Special regime for the information technology export platform; Special regime for the purchase of capital goods by exporters; Incentives for technological innovation; Incentives for information technology and automated products; Incentives for the development of infrastructure; Technological development of semiconductors; Modernisation of Brazilian ports; Incentives for educational activities; Special tax regime for exporting companies; Special tax regime for small businesses; and Special tax regime for the Brazilian aviation industry.

2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.

Brazilian law does not provide for any relief or tax benefit for corporate reorganisations or intra-group transfers of companies or assets. Any disposition of assets or rights in Brazil, including by virtue of merger or spin-off, is potentially subject to taxation. However, depending on the price attributed to the asset and the corresponding cost basis, the transaction may not trigger any taxation. As an example, where...