BRAZIL Law and Practice Contributed by: Carlos Vilhena, Roberta Bilotti Demange and Marina Bertucci Ferreira, Pinheiro Neto Advogados
the combined rate of 9.25% and are assessed over the gross billings of the company. Tax on Transactions The tax on financial transactions (IOF) is a tax on foreign exchange, securities, credit, gold and insurance transactions. The IOF/Exchange is cur - rently imposed on a variety of foreign-exchange transactions. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%. Tax on Sales The tax on sales of goods and services (ICMS) is a value-added tax levied by the state on the circulation of goods (thus covering the entire chain of trades from the manufacturer to the end consumer) and on the provision of intrastate and interstate transportation and communications services. Normally, the transaction value serves as the ICMS tax base. It is a non-cumulative tax and, as such, generates a tax credit to be offset by the product or service recipient against the tax payable on future transactions. Each Brazil - ian state is free to establish its own ICMS rates (generally between 17% and 18%). Tax on Services The tax on services (ISS) is assessed on the ser - vices provided by a company or independent contractor or professional, in accordance with a list of services attached to a federal supplemen - tary law. ISS is levied by the local municipality at a rate of between 2% and 5% on the service value. Mining Royalties The mining statutory royalty is known as the Financial Compensation for the Exploitation of Mineral Resources (CFEM) and the proceeds of this royalty are shared between the local (75%), state (15%) and federal (10%) governments. The royalty rate varies from 1% to 3.5%, depend -
ing on the substance. The royalty is calculated based on the revenue arising from the sales of the ore, with the deduction of marketing taxes. In the event that the mining concession holder actually consumes the substance in its produc - tion chain, then the royalty will be calculated based on the market price of the substance or, if such a price cannot be determined, a reference value determined by the ANM. Consumption Tax Reform Overview On 20 December 2023, the Brazilian National Congress approved the Tax Reform on Con - sumption (ie, Constitutional Amendment No 132 (EC 132/23)). This tax reform brings to the Brazilian tax sys - tem a consumption tax system based on a dual Value-Added Tax (VAT) structure, which aligns Brazil with international taxation standards, par - ticularly those adopted by member countries of the Organization for Economic Co-operation and Development (OECD). The reform created the Contribution on Goods and Services (CBS), to be collected by the fed - eral government, and the Tax on Goods and Services (IBS), to be jointly collected by states and municipalities; and an Excise Tax (IS) to be collected by the federal government on certain goods and services that are harmful to health or the environment; all of them replacing the cur - rent consumption taxes (ie, IPI, PIS, COFINS, ICMS and ISS). The CBS and IBS are characterised by three key features: (i) broad tax base, encompassing transactions involving tangible and intangible goods (and any rights linked to them) or trans - actions involving services; (ii) a non-cumulative structure, allowing taxpayers to calculate credits
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