Understanding corporate Taxation in Brazil

Delimitation

By company, we mean legal persons whose purpose is to carry out profit-generating activities, because there are special regimes for certain categories of companies, such as educational establishments or NGOs.

Moreover, the taxation dealt with here is limited to direct taxes, those which apply to profits.

Applicable taxes on profits

On the gross profits will apply two taxes:

Corporate income tax (IRPJ) at the rate of 15% plus an additional 10% on profits over R$ 20,000.00 per month.

The Social Contribution on Net Profits (CSLL): rate of 9% on profits in general and 15% on the profit of financial institutions.

The two regimes for fixing taxable profits

There are two different tax regimes that will apply depending on the status of the company, its corporate purpose or its turnover:

The real profit regime (“Lucro real”): the taxable profit will be determined by taking the turnover achieved from which the operating expenses are deducted and the financial income is added.

Presumed Profit (“Lucro presumido”) regime: Taxable profit is set by the tax authorities as a percentage of turnover. This percentage depends on the activities concerned, but the general rule is that the taxable profit corresponds to 8% of the gross receipts. The taxable profit of service receipts is set at 32% of these receipts.

These plans are chosen annually, at the start of the financial year. The real profit regime can be chosen if the company has a turnover of less than 78 million reais, does not make a public offering and is not a financial institution.

Obviously, a company that has low operating expenses and good revenues will choose the deemed profit regime. On the other hand, the company in the pre-operational phase or with a lot of expenses, will choose the real profit.

The “simples nacional” regime

This system allows small businesses to pay all their taxes, whether direct or indirect, federal, state or municipal, in one go, monthly, the amount to be paid being fixed on the basis of a percentage applied to the figure of business for the past month. The percentage in question depends on (i) the activity of the company and (ii) the turnover achieved during the last 12 months.