Exports to Brazil
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The import taxes can double the price of goods exported to Brazil. Importing in Brazil is expensive. So much so, that the decision to implant a subsidiary in the Brazilian territory is highly recommended and is essential for those exporters who have ambitious goals to conquer the market.
Moreover, regulation and taxation on Brazilian trade is heavily influenced by its membership in the Mercosur. The administrative process is described in decree 6.759 5/02/2099 known as “Regulamento Aduaneiro”.
See below a chart showing that on the “Ease of trading through the borders”, Brazil ranks 121th:
COMMON NOMENCLATURE OF MERCOSUR
Since 1996 and the signing of the Mercosur treaty (Brazil, Argentina, Uruguay, and Paraguay), goods imported and exported are classified according to the Common Nomenclature of Mercosur (“NCM”).
Classification codes are made up of 8 characters and are based on the Harmonized System (“HS”). The HS nomenclature is an international commodity classification, based on a framework of codes and descriptions for various products marketed internationally. This system was created to enable information gathering and production of coherent international statistics on international trade.
The correct classification according to the NCM is particularly important since the products are subject to different tax levels. A misclassification may result in the payment of the tax differential, and a fine of not less than 1% of the declared value.
To consult on classification, visit http://www.receita.fazenda.gov.br/guiacontribuinte/consclassfiscmerc.htm
More information on the NCM can be found in Appendix 7.
All companies willing to do import/export must be previously authorized by the Public Treasury (Receita Federal) through the RADAR system (Registro e Rastreamento da Atuaçao dos Intervenientes Aduaneiros) and register their legal representatives.
The request for RADAR is made by a legal representative according to IN SRF n°650, 12/5/2006. RADAR can be:
- “Ordinary”, for corporations generally active in international trading,
- “Simplified”, for corporations subject to a DCTF monthly disclosure,
- Especial, for public entities,
- “Restricted”, for entities that already were active in trading, but just for consulting or correcting a previous statement.
Necessary documentation includes the Articles of Association, and its amendments, identification documents of legal representative, invoices of utilities.
In some cases, it will be also necessary to obtain a license of Importation (LI). Importations are classified as such:
- Importations exempt of license,
- Importations with automatic license,
- Importation with license to be obtained.
The license must be required through the Siscomex.
However, there are opportunities for exemption from these common tariffs.
COMMON EXTERNAL TARIFF OF MERCOSUR
The Mercosur countries have agreed upon a list of Common External Tariffs (Tarifa Externa Comum – “TEC”). This list shows the rates applicable to each product classified according to the NCM.
The rate is usually between 0% and 20%. However, mainly in order to protect local automotive and textile production, a 35% tax was introduced.
Once you have identified your product description and its code (8 digits) in the NCM list, you can read in the TEC the level of import tax levied on it.
The function of this tax is known as ‘economic’. For this reason, the Constitution provides that this tax could be retroactive. In other words: rate changes may apply to the tax year in which the law was passed.
It is the same for IE, IPI, PIS and COFINS Contributions, these taxes being all controlled by the Federation!
To this charge may be added the cost of docking and handling of goods.
However, there are opportunities for exemption from these common tariffs. Mercosur Countries will allow these exemptions (downward) under certain conditions. Each waiver must be justified: most often, products subjects to a special decrease are little or not produced locally. These products are required to improve the Brazilian industrial productivity. They are capital-intensive goods, IT products, or technology-intensive products.
In the TEC, these products are identified by the presence of “BK” (for ‘capital-intensive goods’) or “BIT” (IT products). Appendix 8 (source: http://www.desenvolvimento.gov.br/portalmdic/sitio/) presents an extract selected from the TEC, which reveals certain products benefiting from a possible privileged treatment.
Under the condition of demonstrating the absence of a domestic equivalent, the exporter may request an exemption and thus be subject to a tax on imports limited to 2%, and this for a period of two years.
Resolution No. 35 of 22/11/2006 Camex provides the procedures to be followed and other disclosures. Applications should be addressed to the Secretary of Production Development, at the Ministry of Development, Industry and Foreign Trade (MDIC), in duplicate, only by a Brazilian company. It must contain details including the applicant’s social and technical descriptions, classification of the product, estimated amounts – by value and volume – of importation into Brazil, and the sum of related investments.
The MDIC has to verify the existence or not of equivalent domestic production (expect at delay of one month for a reply).
All products with special situation can be found on the www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=1848.
OTHER TAXES INCURRED BY IMPORTS
On top of taxes on importation (“II”), are added IPI, ICMS, COFINS and PIS. While II applies to the customs value (“VD”), it is not the same for other taxes.
The II is calculated on the VD: rate of II (from TEC) * VD
The IPI is calculated on: VD + II
ICMS is calculated on: VD + II + IPI + ICMS + other
COFINS is calculated on: VD + ICMS + PIS + COFINS
PIS is based on: VD + ICMS + PIS + COFINS
ICMS is calculated through an equation with one unknown. Moreover, the ICMS is also applicable on other expenditure items such as freight, insurance, handling costs, etc…. As these costs are not known precisely until the goods are shipped, the exact amount of ICMS is not known until the trade is concluded.
Moreover, because of their complexity, PIS and COFINS calculations require a scientific calculator! These formulas are a reminder that there were engineers who participated in the genesis of taxation on Brazilian imports.
Apart from the II, all other taxes that apply, do participate in the establishment of an equal treatment between imported goods and goods manufactured in Brazil, which are also subjected to these taxes.
CALCULATION OF TAXES ON IMPORTS
The calculation of taxes on exports to Brazil is complex. Here is an illustration:
Importation of a laboratory / pharmaceutical product (NCM code: 3926.90.40) into Brazil:
customs value 100
rate of ICMS: 17%
TEC (or II): 18%
Result of this simulation in Euros:
The basis for the calculation of the II is the customs value.
II: 18% * 100 = 18
However, the basis of calculation of the IPI is the customs value, plus the II.
IPI: 10% * (100 +18) = 11.8
PIS and COFINS are calculated based on: VD, ICMS, PIS and COFINS! To calculate PIS and COFINS, it is first necessary to calculate the ICMS.
ICMS is calculated on the basis of VD + II + IPI + ICMS + other (in this example, other = 0):
ICMS = 17% (100 + 18 + 11.8 + ICMS + 0)
ICMS = 17% (129.8 + ICMS)
ICMS = ICMS 21.96 + 0.17
ICMS 0.83 = 21.96
ICMS = 26.46
PIS: 1.65% * (100 +26.46 + COFINS + PIS) = 2.30
COFINS: 7.6% * (100 +26.46 + COFINS + PIS) = 10.6
THE SIMULATOR FOR CALCULATION OF TAXES ON EXPORTATION TO BRAZIL
These calculations are complex; fortunately, the Ministry of Economy provides a simulator (in Portuguese only, and available on http://www4.receita.fazenda.gov.br/simulador/), which calculates all taxes due for each product referenced in the NCM.
To use this simulator, one only needs to enter:
- the NCM code of the product,
- the customs value,
- the currency,
- the rate of ICMS (variable depending on the state).
This simulator – although in Portuguese – is easy to use. By typing in these four information, it automatically gives the amounts of II, IPI, PIS and COFINS.
In Appendix 9 can be found an example of a simulation conducted on a laboratory/pharmaceutical product. The following data were entered in this example:
NCM code: 3926.90.40
customs value: 100
ICMS rate: 17%
The results are those calculated above.
There are numerous exceptions. This simulation tool is not enough to get all information on the level of taxes that the imported products will incur in Brazil. Here are some exceptions:
MANAUS FREE ZONE
At the heart of the Amazonian State, the Industrial Pole of Manaus (“PIM”), is the main tax-friendly business zone of Brazil.
Traditionally, all goods imported from abroad into the PIM for the fisheries and livestock sectors (traditional sectors of the economy of the State of Amazonia), are exempt from IPI.
For other sectors, goods consumed or used as fixed assets by companies in the PIM, are exempt from import duty (II).
Components, raw materials, packing furniture, secondary or intermediate products for processing, benefit from a suspension arrangement at the entrance to PIM: they are exempt from II if the final product made partly out of the imported component is deemed to be exported. If they enter the Brazilian market, they nonetheless have an 88% reduction on normal fees.
For the automotive and computer industries, parts and components are given a reduction which is weighted by a factor of integration taking into account the local added value. The reduction varies between 65% and 88%.
In all cases, for a foreign product, irrespective of its use, the ICMS must be paid at the rate of 17% when entering the territory of Amazonia (or 25% for a limited number of products).
In return for tax benefits, and except for foreign machinery and equipment, it is necessary to pay two taxes (1.96% and 2% of FOB value) with the SUFRAMA and the Secretaria da Fazenda (SEFAZ).
Moreover, the Brazilian government plans to create 22 new tax-friendly zones to simplify the installation of businesses, with a total exemption from Federation and Federal States taxes. In return, they will have to export abroad a minimum of 80% of their production.
The advantages granted by the State of Amazonia have been successful. Until recently, Foxconn – which manufactures electronic devices, including the I-phone and I-pad on behalf of Apple – announced the creation of a factory in Manaus to bypass the Brazilian customs barriers. It will be the only Foxconn factory outside Asia!
A decision from the tax authorities provides a good example of an exception: in the first half of 2011, despite a 35% tax on importation, car imports accounted for 28% of sales. A proportion deemed much too high by locally based car manufacturers.
To reduce imports of foreign made vehicles and encourage local production, the Minister of Industry and Foreign Trade, Fernando Pimentel, announced on September 2011, an increase of 30 points of the IPI (thus reaching 45%). This decision was highly detrimental to South Korean and Chinese car manufacturers.
Local manufacturers must also use at least 65% of local components to avoid exposure to the same penalties.
Taxes on importation of vehicles are capped at 35% by the World Trade Organization (this rate has long been applied by Brazil). This is why the government raised another tax, to circumvent this WTO rule: Tax on importation is left unchanged at 35%, but IPI is now at 45%.
Thus, the simulator – based on the product code “3926.90.40” gives the following information:
Import Tax: 35%
IPI rates: 45%
PIS rate: 2%
COFINS rate: 9.6%
Such trade protection measures were also taken to protect the textile/clothing sector.
Certain sectors are particularly regulated. For example, for marketing of cosmetics and medical products, a registration with ANVISA (National Agency for Sanitary Vigilance Brazilian) is mandatory. There are the same constraints on the food sector for which the procedures are performed at the Brazilian Ministry of Agriculture, Livestock, and Supply (MAPA).
Moreover, telecommunications, media businesses, medical services, aviation and maritime sectors, as well as land ownership are regulated. The possibility of taking control is limited.
See chapter on exports out of Brazil (next chapter).
EXPORTS OF SERVICES TO BRAZIL
Like all services provided by local companies, imported services are subject to the following taxes: PIS, COFINS, and ISS. On top of that there is a 25% withholding tax when the payment is made.
The ISS is calculated in the same way as for local services.
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The Brazilian IRS issued Normative Instruction 1,639 on May 10, 2016, in order to regulate the use of ATA Carnet for the temporary admission of goods into Brazil. This new system represents a considerable simplification of customs formalities for this system.
The ATA system allows the free movement of goods across frontiers and their temporary admission into a customs territory with relief from duties and taxes, by covering the transaction with a single document known as the ATA carnet, which is secured by an international guarantee system.
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