quinta-feira, 20 de fevereiro de 2014

Selling engineering services in Brazil


Please also read:

Reduction in the Brazilian taxation of imported services - if you are from the right country


I have been talking to a lot of engineering companies lately.

Most of them want to know two things:

How much in taxes will the Brazilian clients pay when they import my engineering services?

And

Why so much? Is Brazil crazy? Don't you know you need engineers desperately?


The reaction is understandable. After all the due calculations, a Brazilian client may pay 50% in taxes, over the original cost of the service. (For a breakdown of this, please read my article on "taxes over software importation in Brazil". Taxation over software and services is very similar)

Usual solutions to this problem are the incorporation of a Brazilian subsidiary, the creation of a JV between the engineering company and the buyer in Brazil or some kind of technology transference agreement that will allow part of the service to be performed in Brazil. The use of non double taxation agreements complements all the above.

Each of those partial solutions also brings new questions.

For instance,  Brazilian law is not clear on the issue of services invoiced from a subsidiary in Brazil directly to the Brazilian customer,  but partially performed by the controlling company of that subsidiary (for example, a team of game developers in Moldova that has a sales team in Brazil). Should transfer pricing rules apply in this case?

Also, JV agreements do not fully solve the problem.  How much investment should be registered for the foreign party that brings 100k in cash, but allow access to cutting edge software?

On top of that, it must be stressed that the Brazilian revenue service has an internal directive that comands its agents to disregard NDT agreements. If you want to see the law being applied, you must file a lawsuit (some french oil drillers that provided services to Petrobras have Recently won a case).

The use of offshore companies to channel payments has been common. But recent changes on regulation of offshore subsidiaries brought uncertainty to this method.

At the end of the day, each of my clients chooses a different mix of solutions, trying to balance tax economy and safety.

What do you do when you face this problem?




5 comentários:

  1. Dear Adler, I have one question for this service related investment. When a FDI Brazil service company needs to import some goods (materials, spareparts) for their own business and they want to consider such goods import as a FDI case,
    First is it possible (for all public procedure, even related with the Banco do Brasil)?
    Second, with what and how?

    Seriously, I just got to understood the import tax calculation. But I need to know this, so I can supply to my Brazil partner safely w/o concerning much tax issue.
    Please, can you give some hints?

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    Respostas
    1. It is possible, but very difficult. Import taxes are due in any case.

      Adler

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  2. I would like to explain the details. A foreign company (A) invested as FDI (99% shaer holder) and has established the Brazil company (B), as a service providing/engineering/import company. This A had a contract with some their Brazil clients so A wanted to appoint B as a sole agency for A/S and related services derived from contracts with Brazil clients. According to such supply contracts and the service-appointment contract with B, A wants to ship the goods, materials necessary but for B to perform such services. Therefore this material importation can be considered as FDI to Brazil? Then how? B is already registered in BDB, SISCOMEX and obtained unlimited import quarter for their business. But the exemption of import tax, for FDI is not clear at moment. So I asked your opinion.

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    Respostas
    1. In this case maybe we can try a temporary importation. Please write me

      Adler

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  3. e Electricity Board as a Member in terms of Section 5(4) and from among the Members of the Board, considering the qualifications specified in sub-section www.saveulegal.com.au

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Do you have any doubts or suggestions? Leave your message (the comments shall not be considered as legal advice)