Loan Intermediary Services: Brazil

Abstract

Brazil does not have a full-fledged national VAT, instead relying on a multitude of federal and sub-national consumption taxes. VAT-type taxation of financial services in Brazil is comprised of federal social contributions (PIS and COFINS) and the local tax on services (ISS). At the federal level, financial institutions are subject to PIS and COFINS levies on gross revenues, with special rules for tax base exclusions and deductions. Since exclusions and deductions for financial institutions are limited, reduced tax rates of 0.65% for PIS and 4% for COFINS apply to gross revenues earned by such taxpayers, adding to a combined rate of 4.65%. Financial revenues earned by entities not qualified as ‘financial institutions’ from July 2015 onwards are generally subject to similar PIS and COFINS levies at a combined rate of 4.65%, in accordance with a controversial change in the federal tax legislation enacted by a decree, which overrode the previous zero-rating rule for such revenues. Inbound financial services are subject to additional PIS and COFINS levies with rates of 1.65% for PIS and 7.6% for COFINS, amounting to a combined rate of 9.25%. Conversely, outbound financial services are not subject to PIS and COFINS levies. Financial services may also be subject to local taxation under the ISS, within the boundaries of a national framework set forth under complementary legislation. ISS rates must not be lower than 2% and are capped at 5%.