segunda-feira, 19 de novembro de 2012

End of withholding tax on the importation of services and software into Brazil


The Federal Court of the Second Region has recently decided that payments remitted abroad for the payment of services rendered by foreigners shall be exempted from Income Withholding Tax.

TO UNDERSTAND

As I have explained in my Lecture on foreign investment into Brazil, the services provided by foreigners (non-resident) in the Brazil are subject to Income Tax (Withholding Tax) at the rate of 25% (15% in case of technical services).

To be accurate, the total taxation is higher and may reach more than 40%. But this post will deal only with the withholding tax. 

That is to say, when wiring a thousand dollars to a Canadian service provider, the Brazilian company had two options:

* Send $ 750 and withhold 250
or
* Send the $ 1,000 and withhold $ 333 ($ 333 corresponding to 25% of the hypothetical amount of 1333, used only for calculation purposes)

Obviously, this situation was cruel. Either the service provider would accept receiving only 75% of the price or the Brazilian company would have to pay at least 33% more.

Misunderstandings on this point gave rise to endless conflicts. In many cases, neither party was aware of this taxation.

But here comes a ray of hope:

According to the new ruling, WHENEVER A BRAZILIAN COMPANY PAYS FOR SPECIALIZED TECHNICAL SERVICES TO A SUPPLIER LOCATED INA  FOREIGN COUNTRY WITH WHICH BRAZIL HAS A TAX TREATY, the payment will be FREE OF  WITHHOLDING TAXATION.

NOTES
The decision is still pending appeal to the Superior Court. We must stay vigilant.

The exemption applies only to the few countries that have already signed a Non Double Taxation Treaty with Brazil. The list follows:

ArgentinaAustriaBelgium
CanadaChileChina
Czech RepublicDenmarkEcuador
FinlandFranceHungary
IndiaIsraelItaly
JapanKorea (South)Luxembourg
MexicoNetherlandsNorway
PeruPhillippinesPortugal
SlovakiaSouth AfricaSpain
SwedenUkraine 

The importation of software and services has become cheaper. But do not forget that they are still subject to the taxation by PIS  Tax,  COFINS Tax, and Service Tax (which can add up to about 14% of the total price)

The remittance of payment for royalties is subject to entirely different rules that may include the incidence of CIDE Taxation. (The overall taxation might be, then, the same old 25%)

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