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ISS – Tax on Services

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Since it is controlled by the Municipalities, the rate of Imposto Sobre Serviços (“ISS” or Tax on Services) is variable depending on the Municipality where the service provider is located. The rate also depends on the service; and in some case, on the location of the client.

For example, you will find in APPENDIX 2, the rates of ISS of the Municipality of São Paulo (in Portuguese).


The ISS is a tax which falls within the jurisdiction of Municipalities and covers the services provided by companies, corporations, or by autonomous professionals, as long as the operation is neither within the jurisdiction of the Federation nor the Federal State.

Most of services are within the scope of ISS, but some are within the scope of ICMS (i.e. within the scope of the Federal State). For example, the provision of telecommunications services, production and distribution of electricity, transport, etc…. are not subject to the ISS as it falls within the jurisdiction of the Federation or the Federal States.

The ISS is not due on exports as long as they generate foreign exchange, and if the benefits or consequences of the transaction are manifested abroad.

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On April 26, 2016, the tax authorities of the city of São Paulo published a controversial Normative Opinion (Normative Opinion 2) that states their position regarding the triggering event for ISS tax on the export of services. This new Normative Opinion is the rule tax auditors will follow during audits.

Under tax law, the export of services is not subject to the ISS tax. However, if the services are performed in Brazil and the results of the services are manifested in the country, then the ISS will be levied.

Even though Brazilian legislation does not define what the “result” of a service is, the tax authorities take the position that the ISS tax exemption applies only if the services are performed abroad. The tax authorities therefore maintain that if the services are rendered in Brazil, the ISS tax will be due, regardless of whether the benefits or consequences of the transaction are manifested abroad.

By taking this position, the tax authorities have limited the situations in which the ISS tax exemption applies. However, it bears noting that there are arguments to made that this new normative ruling is illegal and that, in some cases, the ISS tax should not be levied when the service is performed in Brazil and its results are manifested abroad.


ISS applies to imports.

There is no right to tax credit. The event is the provision of services.

This tax is “cumulative”, i.e. the higher the number of companies taking part in the process of production, the higher the tax burden for the final client. See hereafter an example:


The payer of this tax is the service provider. It is usually the service provider’s responsibility to collect and pay the tax.

The role of Responsible is present also in the payment of this tax. Indeed, municipalities can assign to clients the responsibility of paying the ISS. For example, the State of São Paulo requires the client to pay the ISS due, if the provider does not furnish neither an invoice, nor a receipt as proof that tax was paid.

The ISS is due to the Municipality where the service is physically provided.

Most of the time, the tax is due to the Municipality where the service provider is based. Nonetheless, for a limited list of services (consult law n°116 31/07/2003), the tax must be paid to the Municipality where the client is based. For example, services of cleaning, security, painting, catering… are physically provided on the clients’ premises and therefore ISS is paid to the clients’ Municipality.

But since ISS is the main financial resource for the budget of Municipalities, you end up in situations where both Municipalities demand that ISS be paid to them; and some companies decide to pay ISS twice rather than going to court.

In the case of civil construction – for example – the tax is due to the municipality where the service is performed. Thus, a civil construction company with the head-office in the city of São Paulo, that sells its services in 15 other municipalities, will have to pay a separate amount of ISS to each Municipality.

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Doing business with a client in the Municipality of Sao Paulo?

If your company is based outside the Municipality of SP and sells to client based within the Municipality of SP, the following might happen: you send an invoice of 100 R$ to your client and expect to receive the full payment. But you receive only 95 R$.

Your client has actually made a consultation of the “Secretaria Municipal de Finanças” and found out that your company is not registered there. Therefore, the responsibility of paying the ISS stands on this client and it has pay the ISS to the Municipality of SP.

Conclusion: if you sell to clients in the Municipality, do register your company in order to avoid double taxation (called “bi-tributaçao“). Here is the link to register: http://www.prefeitura.sp.gov.br/cidade/secretarias/financas/servicos/ccm/



The applicable rate depends on each municipality. It is almost always between 2% and 5%.

As this rate depends on them, Municipalities tend to use this rate to compete among themselves in order to entice companies to relocate to within their circumscriptions. The ISS is the main tool for tax competition between municipalities. For example, for most types of services, a company that would leave São Paulo to settle in Alphaville (new city 30Km from São Paulo) would see its ISS rate slashed from 5% to 2%.

The calculation basis is the price of the service. However, in the case of public engineering, some municipalities permit the deduction from the price of services, of the value of materials purchased and consumed (because this value represents the purchase of goods and not services), and the value of invoices of subcontractors if these invoices have already undergone the ISS.

ISS (like ICMS) is calculated “por dentro”. This means that for a product of 100 net of ISS tax, the amount ISS included won’t be 105, but 100/0.95 = 105.26!

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VAT in most of Countries is not calculated “por dentro”. See below the difference and the impact:

VAT method applied in most of countries (assuming a rate of 5%)

  • Price before tax * VAT 5% = Price after tax
  • Example: 100 * 1.05 = 105

ISS applied in Brazil on most of services (assuming a rate of 5%)

  • Price before tax * ISS 5% = Price after tax
  • Example: 100 * 1.0525 = 105.25

The 5% ISS is applied to the gross amount 105.25 :

  • 0.05 * 105.25 = 5.25


The ISS must be paid each month. Deadlines depend on Municipalities. For example, in the city of São Paulo, the deadline is the seventh day of the following month.


Here is a case study to understand the recording of the ISS.

During the month of February 2012, company A has sold services, on credit, to the amount of 10,000 R$ (including ISS), ISS is at 5% or 500 R$.

In the service provider’s accounts – the entry end of February will be:

Accounting for the sale:

– Clients: 10,000

– Sales of services:  10,000

Accounting for the ISS to pay:

– Tax on Services (deduction from gross sales): 500

– ISS payable: 500

This ISS amount of 500 R$ must be paid in March.

In the client’s account:

Accounting for the ISS payer:

– Purchase of services: 10,000

– Supplier payable: 10,000

If the customer is expected to be in charge of paying the ISS to tax authorities in place of the normal service provider, then entries will be:

Accounting for the ISS payer:

– Purchase of services: 10,000

– Supplier payable: 9,500
– ISS payable: 500

This ISS amount of 500 R$ must be paid in March.

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Despite of its earlier position that the dissemination, provision and insertion of advertising and publicity on radio, TV broadcasting, websites and billboards are not subject to the Service Tax (ISS), the Treasury Department of the City of São Paulo enacted the Normative Ruling 1/2016 on March 2016, which says these services are subject to the ISS tax. This ruling does not levy the tax on advertising and publicity in books and newspapers, due to their constitutional immunity under article 150(VI)(d) of the Brazilian Constitution.

We note that taxpayers may be subject to double taxation because the São Paulo State Treasury Office also maintains that these services are subject to the State VAT (ICMS) tax, which was recently confirmed by the Superior Chamber of the Tax and Fees Court of São Paulo (TIT-SP).

However, the issue has not yet been definitively resolved by the courts, even though there are some precedents in similar cases from the State Court of São Paulo (TJ-SP) and the Superior Court of Justice (STJ).


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