Brazil’s Tax Reform introduces a regular IBS and CBS regime while maintaining different rules for companies under Simples Nacional. These differences will affect the tax credits available to purchasers.
1. Consumption taxation vs. income taxation
Brazil’s Tax Reform affects consumption taxation, rather than corporate income taxation.
The main corporate income taxes, IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profits), are not affected by the changes discussed here.
Brazilian companies may currently be subject to two regimes for calculating IRPJ and CSLL:
- Actual Profit (Lucro Real): IRPJ and CSLL are calculated on the profit actually determined by the company, subject to adjustments provided for in tax legislation.
- Deemed Profit (Lucro Presumido): IRPJ and CSLL are calculated by applying statutory deemed-profit percentages to the company’s revenue, regardless of its actual profit margin.
There is also a simplified regime for small businesses, known as Simples Nacional, under which certain taxes are paid on a unified basis by applying rates to gross revenue.
This regime consolidates income, consumption and payroll taxation into a single payment document (DAS).
2. Regular IBS and CBS regime
Under the Tax Reform, IBS and CBS will be calculated by applying the rates established by the respective levels of government.
The sum of these rates corresponds to the total dual VAT rate, currently estimated at approximately 28%.
Companies subject to the Actual Profit or Deemed Profit regimes will be subject to the regular IBS and CBS regime.
Under this system, companies will:
- Calculate IBS and CBS debits on their sales (outbound transactions);
- Take IBS and CBS credits on their purchases (inbound transactions).
3. Simples Nacional
Under Simples Nacional, IBS and CBS will be included in the unified tax payment.
The portion of the unified rate corresponding to IBS and CBS will be lower than the rate applicable to companies under the regular regime.
Consequently, purchases from suppliers under Simples Nacional will generate lower IBS and CBS credits than purchases from suppliers under the regular regime.
However, Simples Nacional companies may elect to calculate IBS and CBS under the regular regime while keeping their other taxes under the simplified regime.
In this case, purchasers will be entitled to take IBS and CBS credits under the rules applicable to the regular regime.