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Brazil ICMS tax exclusion from PIS & COFINS social contribution calc

The Brazilian Supreme Court has confirmed the exclusion of ICMS tax from PIS and COFINS calculations.

The Court confirmed that the state ICMS should be excluded from the tax base for calculating the federal PIS and COFIN on invoices. The ruling has made clear taxpayers may now recognise credits on PIS and COFINS and may ignore any ICMS tax in the calculation base. The Court has backdated this interpretation to March 2017, giving a potential tax recovery opportunity.

Long term, two Brazilian VAT reforms to simplify the whole regime are still being reviewed by lawmakers.

Brazil federal, state and municipal taxes

Currently, the major Brazilian consumption taxes are administered across the federal, state and municipal levels. Federal taxes cover:

  • COFINS, Contribuição Social para o Financiamento da Seguridade Social – the federal tax contribution to the Social Security Financing paid on company revenues. The rate can be up to 7.6% on monthly revenue depending on the activities of the company.
  • PIS, Programa de Integração Social, at a rate 1.65% with COFINS together comprise the social contributions levy applicable to transactions.
  • ICMS—Imposto sobre Circulação de Mercadorias e Serviços—is a state-level sales tax imposed on the physical movement of merchandise.

Other state taxes include IPI, Imposto sobre Produtos Industrializados – the federal tax on manufactured goods. The rate can be up to 300%. ISS, Imposto sobre Serviços – is the major municipal tax on the provision of services. The rate ranges to up to 5%.

You can check the right VAT calculations on individual or batch transactions with our Advisor and Auditor services.

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