Managing Corporate Taxation in Latin American Countries - Brazil (Part I)

1 The regular rate is 15% but a 10% surcharge is applicable to taxable profits exceeding BRL 240,000 per year (approximately USD 130,000 - estimated exchange rate: BRL 1.80 for each USD 1.00). The 9% (or 15%) Social Contribution on Net Profit (CSLL) is also levied on corporate profits.

2 See Section 1.1.2.3.

3 The applicable rate to financial institutions and insurance companies is 15%.

4 Tax losses offsetting shall not reduce taxable profits in more than 30% in any given period.

5 The tax rate varies according to the tax classification number and, in general, the bottom rate is applicable to food and medicine meanwhile the top rate is applicable to superfluous products, such as cigarettes.

6 Pharmaceutical, automotive, beverage, tobacco and fuel industries, among others, are subject to specific taxation regimes.

7 Financial institutions and insurance companies are subject to a 4% rate of COFINS.

8 Provisory Contribution on Financial Transactions (CPMF) – a contribution that was levied (0.38%) on actual or virtual withdrawals from Brazilian bank accounts - was eliminated on December 31, 2007. To ensure the tax collection after the CPMF elimination, IOF rates were increased by 0.38% in several cases.

9 The tax rates vary according to the State and the type of good or service. We informed the lowest and the highest ICMS rates considering all Brazilian States.

10 The tax rate varies according to the Municipality and the type of service rendered.

11 The tax rate varies according to the Municipality. The tax rates mentioned apply to the city of São Paulo.

12 The tax rate varies according to the State. The tax rates mentioned apply to the State of São Paulo.

13 The tax rate varies according to the State, subject to a maximum rate of 8%. In the State of São Paulo, a 4% rate applies.

14 WHT rate is 15% if the service is technical or 25% if not. CIDE is only charged in case of technical service. IOF is levied on the amount of the foreign currency exchange agreement.

15 The ICMS rates generally applicable on imports vary according to the State where the importer is established and the goods imported.

Additional Remarks

Brazil has signed tax treaties with the following countries which have not been ratified yet and, therefore, are not currently in force: Paraguay, Russia, Trinidad and Tobago and Venezuela.

In some specific cases, the tax treaties may not impose an actual reduction of the taxation nor provide for a more beneficial treatment in Brazil. By way of example, since payment of dividends by a Brazilian company is taxed at a zero rate according to Brazilian rules currently in force, the treaty provisions that limit the rate applicable to such payments in the source State do not produce any practical effect.

1 This table provides information about the applicable taxation on remittances of funds overseas from Brazil. When the domestic rate is lower than the rate applicable based on the relevant treaty, we informed only the local rate.

2 Exemption is granted if the beneficiary is the government of the other State, its political subdivisions or government owned entities.

3 There is no specific limitation in the treaty, thus the domestic tax rate applies.

4 Deemed as royalties according to the corresponding royalties article of the treaty or the treaty protocol.

5 The 10% rate applies to royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work, but not including cinematographic films, films or tapes for television or radio broadcasting and the 15% rate applies to all other cases.

6 Deemed as royalties according to a local ordinance.

7 The treaty does not apply to the CSLL.

8 The 10% rate applies to loans that meet some conditions (e.g., minimum repayment terms).

9 The 10% rate applies to royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films, films or tapes for television or radio broadcasting and the 15% rate applies to all other cases.

10 Such reductions are only applicable to the beneficial owner of the income.

11 The treaty applies to the CSLL.

12 Such reduction is not applicable if the main purpose or one of the main purposes of any party involved in the transaction from which the income arises is taking advantage of the treaty provisions.

13 Applies to interest on net equity.

14 A legal entity that is a resident of a Contracting State and derives income from sources within the other Contracting State will not be entitled in that other Contracting State to the benefits of the treaty if more than 50% of interest in such legal entity is held by persons who are not resident of the first-mentioned State or of any of the Contracting States. However, such limitation of benefits does not apply if that legal entity carries on a substantial business activity in the Contracting State of which it is resident.

15 It is possible to argue that the treaty applies to the CSLL. However, Brazilian tax authorities may not have the same understanding.

16 The 15% rate applies to royalties arising from the use, or right to use, trademarks and 10% for other cases.

17 The 15% rate applies to royalties arising from the use of, or right to use, trademarks and any copyright on cinematographic films, films or tapes for television or radio broadcasting. The 12.5% rate applies to all other cases.

Overview

1. Income Tax

   1.1. General Aspects

   1.1.1. IRPJ and CSLL Rates

   The general statutory IRPJ rate for Brazilian entities (including Brazilian branches of foreign companies) is 15%. A surcharge of 10% is applicable for taxable income exceeding BRL 240,000 per year (approximately USD 130,0001) or BRL 20,000 per month (approximately USD 11,000) in case of base periods shorter than one year. CSLL is due at a 9% rate (except for financial institutions and insurance companies which are subject to a 15% rate).

   1.1.2. Taxable Base

   Brazilian legal entities may use one of the three following systems to calculate their taxable income: (a) the Actual Profit; (b) the Deemed Profit 2 or (c) the Arbitrated Profit 3. Since the most usual is the Actual Profit, the considerations below relate to this system. Generally speaking, the taxable income is based on the net profit reported in the company's financial statements (according to the Brazilian Generally Accepted Accounting Principles – "BR GAAP"), adjusted in accordance with the additions and exclusions set forth by the tax legislation.

   Laws 11638/07 and 11941/09 introduced relevant changes in the BR GAAP, seeking the convergence of the Brazilian rules with international standards. Such rules have already been:

   (i) considered in the latest instructions and opinions of the Brazilian Securities Exchange Commission ("CVM") and the National Accounting Committee ("Comitê de Pronunciamentos Contábeis" or "CPC"); and

   (ii) regularly approved by the Brazilian Federal Accounting Council ("Conselho Federal de Contabilidade" or "CFC"), being, thus, applicable to all Brazilian companies.

   As from 2010, all companies, regardless of the taxation regime adopted (Actual, Deemed or Arbitrated Profit system) must use the Transitory Tax Regime ("RTT"), established by Law 11 941 /09. Under this regime, the calculation of the IRPJ, CSLL, PIS and COFINS is made using the net profits ascertained according to the accounting rules in force on December 31 , 2007 (i.e., prior to the changes mentioned above).

   A summary of the calculation of the IRPJ and the CSLL...