BRAZIL LAW AND PRACTICE Contributed by: Ricardo Barretto Ferreira da Silva, Ingrid Bandeira Santos, Sylvia Werdmüller von Elgg Roberto and Isabella da Penha Lopes, Azevedo Sette Advogados
is subject to ISS taxation, which was an impor - tant step towards legal security in the technol - ogy market. PIS and COFINS PIS and COFINS are federal social contribu - tions levied on gross revenues. Digital goods and services are subject to PIS and COFINS at rates of 0.65% and 3%, respectively, if the ser - vice provider is under the cumulative system. If the service provider is under the non-cumulative system, the rates of PIS and COFINS are 1.65% and 7.6%, respectively, and the company is enti - tled to tax credits on some expenses provided by legislation. Special rules apply depending on whether the software is developed in Brazil or not. Special Considerations for International Providers Non-resident companies providing digital ser - vices to Brazilian consumers face additional tax requirements. A withholding tax (WHT) is imposed on cross-border transactions involving royalties or technical services at a rate of 15%. In cases involving a double tax treaty (DTT), the WHT rate may change. Additionally, CIDE ( Con- tribuição de Intervenção no Domínio Econômico ) may apply to certain technology-related pay - ments at a rate of 10%. Challenges Faced by Brazilian Companies in Managing Tax Compliance The main challenge in managing tax compliance in recent years was the classification of digital products and services, which was resolved to some extent by an STF decision according to which the licensing or right to use software is subject to ISS taxation. Another significant challenge is the lack of uni - formity in tax regulations. Tax rules vary widely
among jurisdictions, resulting in considerable discrepancies in the application of rates and rules. Previously, the digital provision of ser - vices was understood to be subject to either ICMS or ISS, depending on the interpretation of the respective tax authority. This issue is further compounded by Brazil’s administrative structure, which comprises 27 states and over 5,000 municipalities. This fragmented framework has created a highly complex environment for managing tax compliance, demanding signifi - cant resources and expertise from businesses to ensure adherence to diverse local regulations. Frequent changes in tax laws, the high cost of compliance and aggressive tax enforcement have contributed to a highly complex tax sys - tem for many years. However, the landscape has started to shift following the STF decision, which clarified certain aspects of digital taxa - tion. Looking ahead, the ongoing tax reform may bring significant changes, potentially simplify - ing compliance and addressing long-standing issues within the system. It is important to bear in mind that tax disputes in Brazil are common, with companies often resorting to litigation to settle issues. The judi - cial system is slow, and tax cases can take years to resolve, leading to prolonged uncertainty. Additionally, it is important to mention that the Brazilian Congress passed a major tax reform in the end of 2024, which shall start being pro - gressively implemented from January 2026. The transition period is expected to last a few years until the new rules are all in force. 1.3 Taxation of Digital Advertising Digital advertising, previously defined as the “provision, without definitive transfer, of audio, video, image, and text content via the internet”, is subject to a mix of federal and municipal tax -
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