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Corporate Taxes
No foreign corporation may carry out permanent There is no legislation that favors foreign share-
activities in Brazil except through a registered holders or holding companies. Companies partic-
subsidiary, branch or permanent establishment, ipating in certain sectors, such as banking, insur-
and these corporate entities, including those that ance, leasing, etc., are subject to special tax rules.
are foreign controlled, must calculate and pay tax Tax holidays are offered to certain industries
on a monthly basis and file an annual tax return operating in specific areas.
consolidating the monthly results from the pre- No tax consequences arise from converting a
vious calendar year. This annual return has to be non-incorporated business into an incorporated
filed by the end of June. entity or from changing the corporate form, such
For tax purposes, business profits are com- as from a “limitada” (private limited liability com-
puted on the basis of net income, as reported in pany) into a corporation.
the income statement (profit and loss account), The current maximum consolidated effective
adjusted for non-taxable income and non-deduct- tax rate on taxable income (IRPJ ) is 34%. In addi-
9
ible expenses. tion to corporate income tax, all legal entities are
Inter-company transactions are subject to subject to a social contribution tax to the federal
transfer pricing rules. government at the rate of 9% (except for insur-
Capital gains are taxed as ordinary income. ance and financial institutions, which are subject
The cash basis may be used to compute profits on to a 15% rate), which is not deductible for corpo-
certain long-term sales of permanent assets. Cap- rate income tax purposes. The tax basis is profit
ital losses may only be offset by capital gains. Un- before income tax, after certain adjustments.
used capital losses are treated similarly to income
tax losses with regard to limits on use and carry
are treated as ordinary non-operating income and Foreign
forward period.
Gains from the sale of depreciable property
not as capital gains.
TAXATION change gains and losses in their taxable income, personnel
Corporate taxpayers may elect to include ex-
on an accrual basis or when realized.
Interest income is taxable on the accrual basis.
In Brazil, foreign workers are taxed as residents
type. There are no special rules for foreign person-
Dividends: on their worldwide income, regardless of the visa
nel who hold a permanent visa.
The Brazilian Federal Constitution of 1988 gives ? Are not subject to withholding income
the main guidelines for taxation. It establishes the tax and neither is the recipient;
general principles of taxation, limitations on the
power to tax, jurisdiction to tax amount levels of ? Received from other local companies, Partnerships and
government and tax revenue sharing provisions. including subsidiaries and affiliates, are
Administrative-political autonomy confers on not subject to corporate income tax;
each level of government the possibility of institut- Joint Ventures
ing taxes, fees (due to its police power or to the use ? The payment of dividends in kind is not
of public services) and improvement charges (due prohibited by corporate law, provided that
to public works). Most social contribution taxes specific rules and terms are clearly defined in The procedures for the taxation of partnerships
can only be established by the federal government. the Articles of Incorporation or the payment is and joint ventures are similar to those for corpo-
There are also regulatory taxes, like the IOF approved at the Annual Shareholders’ Meeting. rate taxpayers.
(Tax on Financial Transactions), the IPI (Excise tax)
and the CIDE (Contribution for Intervention in the Royalties and service fees received by Brazilian
Economic Domain), which are used by the Federal residents are taxable on an accrual basis.
Government as auxiliary instruments in conduct-
ing monetary and industrial policies, respectively. 9 Acronym in Portuguese.
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