International VAT Guides – Brazil

VAT rates in Brazil 

How much is VAT in Brazil? 

The Brazil VAT regime is an example of a very complex tax system founded on different indirect tax variations. Brazil hasn’t yet introduced the VAT regime as it’s known in most countries worldwide. The Government has been working diligently in the last few years to establish a legal framework for the upcoming implementation of the VAT regime. 

The adopted VAT reform is a gradual project that is expected to be finalized by 2032. The first, initial testing phase should start from the first months of 2026. Currently, the Brazilian tax system comprises various taxes and tax duties imposed at the municipal, state, and federal levels. 

At first glance, it may seem that there are similarities with the Sales tax system in the U.S.; however, there isn’t a notable level of similarity. 

Brazil’s tax burden comprises all taxes paid within the country, including municipal, state, and federal taxes levied on products and services.

Federal Taxes 

Federal taxes in Brazil account for the highest percentage of a country’s tax revenues. To mention a few, there is the Income Tax (IR or IRPJ), which is a tax on the income and earnings of taxpayers, including both natural and legal persons; the Tax on Industrialized Products (IPI) is a tax imposed on the production and import of industrial products. 

State Taxes 

State taxes are second in “relevance” when it comes to the contribution to forming a country’s tax revenue budget. Some of the examples of this category of taxes are: 

Tax on the Circulation of Goods and Services (ICMS) – This is a type of tax imposed on the supply of goods and services, and it is one of the primary sources of revenue for the country. 

Municipalities 

Municipal taxes account for the smallest portion of Brazil’s tax revenues. However, their importance should not be overlooked when considering their contribution to municipal budgets. Municipal tax authorities are vigilantly monitoring the collection of municipal taxes. 

Some of the most critical municipal taxes are:

• Urban Property and Land Tax(IPTU) – imposed on the ownership of immovable property
• Service Tax (ISS) – This is a municipal tax levied on the provision of services. 

Indirect Tax Framework 

As we can conclude from the basic outline above, the Brazilian tax system is very complex. A similar approach is also evident within the indirect tax framework. When we compare the VAT Brazil with that in most countries, we can hypothetically draw a line and say that ICMS and ISS in Brazil are, from the perspective of e-commerce vendors and digital service providers, the most impactful. 

The Federal Law outlines Brazil ICMS, but it is modified and framed under each State’s internal policies. The same goes for the local ISS tax. 

Tax rates for ICMS Brazil have a vast scope(each defined at the state level). Practically, this means that the supplier can experience a tax rate range of 0% to 39% on its supplies across Brazil’s 27 states. One more condition that could be mentioned here is that for supplies made by an ICMS-registered taxable person in one state to a customer in a different state, the ICMS rate Brazil is imposed and differs from 4% to 12%. 

Municipal Service Tax(ISS), which is levied on the provision of services to customers residing in one of the municipalities, ranges from 0% to 5%. 

VAT threshold in Brazil 

There is no VAT threshold in Brazil.

There are no minimum registration thresholds for suppliers of goods and services regarding taxable activities under the indirect tax framework. 

The ICMS taxable person is any type of person, natural or legal, that carries out regular, taxable supplies of goods and services, for commercial purposes. 

VAT Taxable Activities in Brazil

Tax on the Circulation of Goods and Services(ICMS) is imposed on most of the goods and services that are supplied or provided within the country. The Tax is primarily regulated by a “Complementary Law” No. 87/1996, better known as the Kandir Law. The Federal legislature defines the minimum rates, and each state’s authorities have the freedom to determine the exact tax rates. 

Types of taxable activities that trigger mandatory VAT registration:

• Supply of goods 
• Export of services
• Import of goods 
• Telecommunication services 

Tax Representative in Brazil 

Non-resident service providers need to have a tax representative in Brazil. 

Tax registration

There is no threshold for ICMS registration. Taxable persons that are mandated to register for ICMS must do so in the State where they make their taxable supplies. After registration, the state tax authority will issue them a State Registration Number(IE) that will be used for all related activities. 

Rules and requirements for registration differ at the state level.

VAT on Electronically Supplied Services in Brazil 

Digital Services

Non-resident providers of remote services without permanent establishment in the country don’t have an obligation to register for ICMS or ISS. However, they could have a responsibility to register for Income tax. This liability should be analyzed in accordance with the income tax laws of each state separately.   

Taking into consideration the latest information regarding the applicability of the dual VAT system, which is a work in progress and whose implementation is expected to start next year, there is an indication that the Brazil VAT rate for supplies of digital services by non-resident providers could be in the range of 25%-28%. 

When it comes to B2B supplies of electronic services, the domestic taxable persons should collect and report tax under the reverse charge mechanism. 

How much is VAT in Brazil for Electronically Supplied Services?

 The VAT rate Brazil, which means ICMS and/or ISS rate for ESS services, differs at the state and municipality levels. 

Taxable Digital Services in Brazil

The following types of digital services could be taxable under ICMS for domestic suppliers:

• Audio and video streaming services 
• SaaS services
• E-books and publications 
• Intermediation between third parties offering goods or services and those seeking them.
• Travel arranging services

Marketplace and Digital Platform Operators Rules

The non-resident operator of a digital platform that facilitates the supply of remote services isn’t obligated to register for ICMS. 

Invoicing Rules

Brazil has one of the most complex frameworks of rules and requirements for B2C and B2B invoicing. It’s one of the first Latin American countries to have modernized its invoicing system, making a significant shift from a primarily paper-based system to electronic invoicing. 

There is a broad scope of invoicing requirements for both domestic and foreign businesses that have a physical presence in the country. The rules and regulations differ at the state level. Most of the 27 states have adopted one or more types of electronic invoicing or digital reporting of transactions. 

The primary accounting documents that should be issued by taxable persons or reported online to tax authorities are electronic invoices(NF-es) and the electronic invoice complementary document(DANFE). 

For B2C transactions, online sellers are generally required to issue one form of so-called Electronic Consumer Invoices(NFC-es). There is also a special category of electronic invoices, known as NFS-e, which is essentially an electronic invoice for B2C services, regulated at the municipal level.

Taxable persons providing services taxable under the ISS municipal tax are obligated to issue an electronic invoice following specific municipal rules. 

Foreign Currency Invoice in Brazil  

In most cases, issuing an invoice in a foreign currency is permitted. However, submitting an ICMS return should be processed exclusively in local currency.  

ICMS Return in Brazil 

Standard Return 

ICMS registered taxable persons are obligated to submit the so-called Digital Tax Record return(EFD-ICMS/IPI) monthly. 

ICMS return

Penalties for late reporting and omitted declarations 

Penalties in case of late filings or misdeclarations

ICMS(state tax) – depends on the following circumstances: 

• Amount of tax due
• Is the infringement the result of a mandated tax audit or not 
• State’s specific requirements 

ISS(Municipal tax)

• Depends on the municipality’s rules
• Amount of tax due 
• Type of infraction 

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