I INTRODUCTION

The main source for Brazilian civil law is the Civil Code, which was reformed in 2002. The administration of justice has undergone some improvement with the implementation of virtual procedures at all levels, but it is still very slow. Alternative methods of dispute resolution are, however, gaining more and more importance. In fact, arbitration has become the first option in dispute clauses in many commercial agreements and mediation in business disputes is present in some sectors, such as construction services. In June, Law 13,140/15 introduced general provisions regarding mediation in Brazil, which is likely to increase its use in the country.

The Brazilian economy is large by almost any standard and plays host to many diverse activities. There is also still state and semi-state participation in many strategic sectors, such as transport and infrastructure. Some business sectors are limited for foreign investors.

Nowadays, Brazilian economy is facing some turbulence. Inflation, recession, devaluation of Brazilian currency, higher unemployment rates, corruption scandals and other bad news turned 2015 into a difficult year for political and economic life in Brazil. Tough measures are expected from the federal government to control inflation, to increase the trust of Brazilian and foreign investors and to avoid continuing recession in 2016.

II COMMON FORMS OF BUSINESS OrganisATION AND THEIR TAX TREATMENT

For foreign investors, the most common form of doing business in Brazil is through an incorporated subsidiary (SA) or a limited liability company (Ltda). Branches in Brazil require authorisation from the Ministry of Justice and receive no special treatment compared with a subsidiary regarding tax, labour and civil obligations.

Income in Brazil is taxed by corporate taxable income (IRPJ) and a federal social contribution on profits (CSSL). There are two basic forms of assessing a company’s income tax and social contribution on profit: through the actual taxable profit or the presumed profit method.

In an actual taxable profit assessment, IRPJ is calculated under a system whereby a single income tax rate applies (15 per cent plus 10 per cent surcharge on annual taxable income above 240,000 reais). It is calculated and paid on an annual or quarterly basis. The CSSL is calculated on the net profits, at a 9 per cent tax rate and its tax basis is the same as for IRPJ. For some activities there are different CSL rates, but the higher is 20 per cent. Advanced payments calculated as a percentage of gross revenues are required if the taxpayers opt for an annual assessment of IRPJ and CSSL.

On the other hand, corporate taxpayers with gross revenues not exceeding 78 million reais2 may opt for an estimated profit assessment. In this method, the 15 per cent rate (plus 10 per cent surcharge) is calculated on a percentage of quarterly gross revenue after minor adjustments. The percentage varies according to the company’s activities from 8 per cent (commercial trades) to 32 per cent (services providers).

In any case, some gains are always submitted to the actual taxable profit method and are not included in the presumed tax basis, as explained below.

i Corporate

As previously mentioned, the most common forms used by local and foreign investors are SAs and Ltdas.

In general, both can be wholly foreign-owned, and all the investments in Brazil must be registered with the Brazilian Central Bank (BACEN) in an electronic system known as RDE.

In an Ltda, the number of quota holders may not be fewer than two (legal entities or individuals),3 whereas an SA may have only one shareholder. In both cases, if a quota holder or shareholder is a foreign entity, a representative domiciled in Brazil should be appointed.

An Ltda is formed by the signature of public or private articles of incorporation, which defines the basic governing provisions and the relationships between the quota holders and partners. The entity’s articles of incorporation should contain clear provisions on voting rights, management powers and transfer of capital quotas. The entity’s name should be followed by the word ‘Limitada’ or its abbreviation ‘Ltda’.

It is usually a more complex procedure to establish and maintain an SA than an Ltda, although ownership and management control and transfer of participation are more flexible in an SA.

ii Non-corporate

There are no non-corporate entities in Brazil and for the interpretation of treaties to avoid double taxation on income; Brazil always considers any entity as a corporate entity, including all kind of permanent establishments.

III DIRECT TAXATION OF BUSINESSES

i Tax on profits
Determination of taxable profit

As mentioned, the IRPJ is a federal tax levied on the accounting profit adjusted by certain non-deductible items and non-taxable revenues, as stated in the tax legislation (actual taxable profit method).

As a general rule, the taxpayer calculates income tax on a quarterly basis. Alternatively, for the actual profit method, an annual calculation may be selected. Under the annual regime, monthly payments should be made (in advance) calculated on the monthly gross revenue or on the accumulated taxable income (book profit adjusted by non-deductible items and non-taxable revenues).

Some expenses may be deducted from the income tax basis. A few examples of deductible expenses are ordinary and necessary business expenses paid or incurred in conducting the business, lease or rental expenses, depreciation and amortisation, taxes and related fees or contributions, and any other cost effectively related to the production or commercialisation of goods, products or services.

Except for land, which is not depreciable, depreciation of property, plant and equipment is an allowable deduction.

Amortisation of goodwill that arises as a result of accounting for investments in subsidiary and associated companies is deferred for taxation purposes. Law4 defines goodwill as it is defined in international financial reports standard (IFRS) norms, so it will not be calculated in the same way as it was in the past, where it was a simple difference between amount paid in acquisition of an investment and the equity value of the investment. Presently only amounts paid in acquisition of investments that surpass the fair value of the entity assets individually considered are allocated as goodwill for future amortisation.

Amortisation of patents, trademarks and copyrights is a deductible expense. Royalties received in relation to patents, trademarks and copyrights are a deductible expense within approved limits that vary from 1 per cent to 5 per cent of gross revenues related to the products and services with the protected intellectual property.

Profits are usually calculated on accrual basis of accounting. After the adoption of international accounting standards, and a period of four years with a special accounting GAAP exclusively for tax purposes, Provisional Measure 627/13, converted into Law No 12,973, was enacted on 14 May 2014,5 regulating the taxation of profits calculated with IFRS accounting GAAP.

Law 12,973/14 harmonised the rules that govern federal taxes with the new accounting criteria introduced by Laws No. 11,638/07 and 11,941/09 (IFRS). As a consequence, the transitional tax regime was extinguished.

A foreign corporation is only subject to Brazilian tax when it directly derives income from Brazilian sources. However, services rendered to Brazilian residents are considered as income derived from a Brazilian source.

Capital and income

Capital profits are taxed as ordinary income for Brazilian companies. For payments from a Brazilian source to foreign individuals or foreign corporations, capital gains are taxed at a 15 per cent rate; the same rate is applicable in capital gain referred to transfers of Brazilian assets between non-residents. This rate is increased to 25 per cent if the foreign entities are domiciled in a tax haven jurisdiction or countries considered by Brazilian legislation as having favoured taxation (income rate below 20 per cent).6

Dividends are exempt; unless if they are paid as interest on capital (JCP), when 18 per cent rate will apply.7

Losses

Tax losses may be extinguished in certain situations, for example when a company cumulatively undergoes a change in control and its business activity, or as a result of split-offs or mergers and may not be used in the surviving company.

As from 1 January 1996, tax losses should be segregated into operational and non-operational for offset purposes. Non-operational losses can absorb only the non-operational profit for the calendar year, respecting the 30 per cent limited of adjusted net profit. Losses carried forward can be accumulated for an unlimited time, but the deduction of losses is limited to a maximum 30 per cent of taxable income per fiscal year.

Rates

IRPJ is levied at a rate of 15 per cent (plus a 10 per cent surcharge), and CSSL at a rate of 9 per cent. Special rates apply accordingly to taxpayer activities, for example, 20 per cent for financial institutions that was introduced by Law 13,169/ 15 and is applicable to income generated since September 2015.

PIS and COFINS are federal social taxes, levied at a rate of 0.65 per cent (cumulative) or 1.65 per cent (non-cumulative), and 3 per cent (cumulative) or 7.6 per cent (non-cumulative), respectively. They are calculated as a percentage of the monthly gross revenue after certain deductions and exclusions. It is possible to offset certain credits on inputs and some other expenses, according to the applicable legislation (non-cumulative). COFINS and PIS are deductible for corporate tax purposes.

COFINS and PIS are also levied on the import of goods and services from abroad (tax credits are allowed).

Administration

With very few exceptions, the taxes due are usually calculated by the taxpayer and paid on a periodical basis, likely monthly or quarterly.

All corporate entities are supposed to file electronic tax returns. In fact, it is the government’s aim for all accounting records to be notified in a federally managed system called the Public Digital Bookkeeping System or SPED. Since 2014, the traditional income tax return has been replaced by an electronic tax return incorporated into the SPED: the Tax Account Book, known as the ECF.

In Brazil, taxpayers are requested to present several different tax returns electronically and the tax authorities are able to cross records to obtain information from activities of all taxpayers, what has reduced tax evasion.

The Brazilian tax system is primarily governed by the Federal Constitution and the National Tax Code (CTN). These contain all general provisions, definitions, competence and procedures concerning the tax system. The CTN is of general application and must be observed by all authorities within the Brazilian territory, including federal, state and municipal.

There are federal taxes (e.g., income tax, IOF (see below), PIS and COFINS), state taxes (e.g., ICMS) and municipal (e.g., ISS), which will be described below.

Taxpayers are allowed to formulate questions for the Federal Revenue to obtain guidance as to the correct tax treatment and other queries they may have. In the same way, taxpayers may challenge any notices of tax assessment if they do not agree with their terms. An administrative litigation procedure deals with disagreements of taxpayers with tax assessments made by the tax authorities.

Besides the administrative litigation procedure, taxpayers may submit their disagreements directly to judicial courts, at any time, observing the legal time limitations.

Tax grouping

The concept of tax grouping does not exist under Brazilian law; entities are taxed individually and for some taxes each establishment is considered a separate taxpayer (e.g., ICMS).

ii Other relevant taxes
Federal level

Excise tax (actually a federal VAT) on the manufacturing of products (IPI) is levied at various rates on industrialised products when sold or transferred by the industrialising establishment even if industrialisation is incomplete, partial or intermediate. IPI is also levied on imports at the same rates as on Brazilian-made products. IPI tax rates range from 5 per cent to 20 per cent, with some exceptions subject to higher or lower rates.

Import duty (II) is generally levied on an ad valorem basis on the cost, insurance and freight value of the product. The invoice value is usually taken as the basis for determining the normal price, but in order to protect local products or to tax non-essentials heavily the Tariff Policy Council may establish minimum import values or base prices or apply specific tax rates. As a general rule, the tax rate is around 2 per cent to 14 per cent, with some exceptions subject to higher or lower tax rates.

Financial operations tax (IOF) is levied at varying rates on loans and credit transactions, securities transactions, certain foreign exchange transactions and insurance policies. It is added to the cost of each transaction. Also levied at varying rates on income earned from certain short-term financial investments, the tax must be withheld by the financial institution from the investor. Both companies and individuals are subject to IOF.

Companies that pay royalties fees and technical services fees to foreign parties are subject to contributions to the economic intervention domain calculated at a 10 per cent rate based on the amounts paid, credited, delivered, used or remitted to the non-resident beneficiary.

State level

Value added tax on sales or services (ICMS) is levied on sales or physical movement of goods, on freight, transportation and communications services, and on electricity, normally at the rate of 18 per cent or 19 per cent for intrastate transactions and 7 per cent to 12 per cent for interstate transactions. In some states certain products are exempt. This tax is also payable on almost all imports at 18 per cent to 25 per cent, but most exports are exempt.

Municipal level

The importation of services or services rendered locally are taxed by the municipalities (by a service tax, or ISS), at rates varying from 2 per cent to 5 per cent, with the exception of services related to freight, transportation, communications and electric energy, which are subject to ICMS.

IV TAX RESIDENCE AND FISCAL DOMICILE

i Corporate residence

A corporation is considered as resident in Brazil if it has been incorporated in Brazil. Its tax domicile is where its head office is located.

ii Branch or permanent establishment

No foreign corporation may carry out permanent activities in Brazil other than through a registered subsidiary, branch, or permanent establishment. A branch is considered to be a permanent establishment as it is an agent who has powers to bind an overseas principal contractually. Each tax treaty should be consulted for further details and definitions of permanent establishment, but in Brazil a branch depends upon public authorisations and the qualification as a permanent establishment will be treated as irregular activity in Brazil if it is not registered as a branch.

V TAX INCENTIVES, SPECIAL REGIMES AND RELIEF THAT MAY ENCOURAGE INWARD INVESTMENT

Brazil grants no special tax regimes for entities’ operations outside the country.

i Holding company regimes

There are no special holding company regimes for receipts of non-local dividends or income.

ii IP regimes

Despite the fact that intellectual property is a concept thoroughly protected by Brazilian laws and that Brazil has signed many international treaties regarding this matter, Brazilian laws do not entail any special IP tax regimes.

iii State aid

Some Brazilian states grant ICMS exemptions on the import of fixed assets for industrial plants where there is no comparable equipment produced in Brazil.

Apart from that, the Manaus Free Trade Zone (ZFM) is an industrial and commercial centre implemented by the Brazilian government in the 1970s to stimulate economic production and social development of northern Brazil. The ZFM has many tax incentives as well as low or no customs rates.

iv General

Brazilian government provides a few special regimes and tax incentives for certain areas, including the following.

REPETRO

REPETRO is a federal special tax regime for the importation and exportation of specific goods or equipment used in the exploration and production of oil and natural gas activities into the Brazilian territory and, generally, grants the full exemption of federal taxes on imports (i.e., II, IPI, PIS and COFINS).

This special tax regime includes three sub-programmes:

  • a symbolic exportation: exportation with no physical transference of goods or equipment abroad, and subsequent importation of the goods or equipment under the temporary admission regime;
  • b temporary admission regime: when foreign or domestic goods or equipment are imported to be used into the Brazilian territory for a determined period of time and purpose; and
  • c drawback: importation of goods or equipment, raw materials and other inputs to be used on building of goods or equipment to be later exported.
REIDI

Brazilian tax legislation allows legal entities with infrastructure projects in the energy sector approved by the government and by tax authorities to claim a tax benefit on the acquisition of fixed assets.

Pursuant to a formal application, an exemption may be granted from PIS and COFINS, and also from PIS and COFINS on imports on the acquisition of fixed assets on domestic and foreign markets. Companies can benefit from this tax incentive for five years after the approval of the infrastructure project.

There are also special tax regimes that apply to activities connected with the FIFA World Cup and the Olympics Games, which are similar to those required when these sporting competitions take place elsewhere around the world.

VI WITHHOLDING AND TAXATION OF NON-LOCAL SOURCE INCOME STREAMS

i Withholding outward-bound payments (domestic law)

Under Brazilian domestic tax law, dividends distributed to resident or non-resident beneficiaries (individuals or corporate entities) are exempt from withholding tax.

Other payments made by Brazilian entities to foreign entities generally trigger Brazilian withholding income tax at a 15 per cent rate or 25 per cent rate (unless a lower tax treaty rate applies). The rate is increased to 25 per cent if the foreign entities are domiciled in a ‘tax haven’ jurisdiction (income rate below 20 per cent). If a Brazilian company decides to pay JCP to its shareholders instead of dividends, 18 per cent withholding tax will apply.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

There are no exemptions regarding the elimination of the withholding taxes due, except for the remittance of dividends, which is tax-exempted under Brazilian law.

iii Double taxation treaties

Relief from double taxation is available if a treaty exists between Brazil and the country from which foreign-sourced income is generated or if reciprocal treatment is applicable.

In general, treaties cover only corporate and individual income tax and remittance taxes and do not affect the payment of capital gains tax. Each treaty should be consulted to determine the method of eliminating double taxation: tax credit or exemption.

Note that interpretation of tax treaties by the Brazilian judicial courts may differ from international interpretation and must be taken into account before any decision on using a tax treaty for tax-planning purposes.

iv Taxation on receipt

Withholding taxes on dividends was reduced to zero per cent as of 1996. Treaty rates in excess are automatically reduced to zero.

The rate for remittances of interest and royalties was reduced from 25 per cent to 15 per cent as of 1996. Treaty rates in excess of this are also automatically reduced to zero.

VII TAXATION OF FUNDING STRUCTURES

A wide range of credit and financial services is available from an extensive banking and financial network. Financing is also available for foreign-controlled companies.

Banking and financial businesses are regulated by BACEN. Loans from the BNDES are also very common.

i Thin capitalisation

Until recently, there were no statutory provisions for maximum debt-to-equity ratios of Brazilian companies (thin capitalisation rules). The deduction of interest on debt deemed excessive could be challenged by the Brazilian tax authorities on the basis that the debt transaction was not necessary to the core business activities of the Brazilian company. In this case, one of the general deduction requirements provided for under Brazilian tax law would not be complied with.

This situation was modified in December 2009. This new legislation targeted to avoid tax evasion resulting from ‘interest stripping’, which was deemed to occur when a Brazilian company paid interest on ‘excessive’ debt transactions entered into with certain non-Brazilian creditors. Whereas interest paid on such debt may be taxable by withholding income tax at the rate of 15 per cent, or, at most, 25 per cent, this interest may be deductible from the taxable basis of the IRPJ and CSSL, which represents tax savings of 34 per cent over such amount.

These new thin capitalisation rules target debt transactions entered into by a Brazilian company with a non-Brazilian creditor that either:

  • a is defined as a ‘related party’ to the Brazilian company, including a non-Brazilian company that controls, is controlled by, is an affiliate of, or is under common corporate or management control as the Brazilian company; or
  • b is a resident of or domiciled in a ‘tax-favourable jurisdiction’, or in a ‘privileged tax regime’.

The method adopted by the Brazilian legislation is the fixed debt-to-equity ratio as follows:

  • a debts with related parties not domiciled in a ‘tax haven’ jurisdiction or countries with favoured taxation: maximum debt-to-equity ratio of 2:1; or
  • b debts with corporates domiciled in a ‘tax haven’ jurisdiction or countries with favoured taxation, regardless of whether they are linked: maximum debt-to-equity ratio of 0.3:1.
ii Deduction of finance costs

All interest and financial charges paid or accrued during the taxable year are generally deductible, including those from foreign entities. However, interest paid to entities domiciled in tax haven jurisdiction (black-listed) or foreign entities with special benefit regimes (grey-listed) may incur in excess of debts and limited of deduction of interest, in accordance with thin capitalisation rules described above.

The general rule of necessary expense applies to financial expenses. For example, the deduction of expenses with interests can be disregarded if a company pays interests in a loan and lend money to subsidiaries with lower rates.

iii Restrictions on payments

There are no rules restricting the payment of dividends, as long as the investment in registered within the Brazilian Central Bank. Without the registration some restrictions may apply on remittance of the dividends abroad.

iv Return of capital

Equity capital can be repatriated. Dividends, as mentioned before, are not subject to any taxes. Interest, capital gains on sale of shares or quotas, and some other remittances are generally subject to 15 per cent income tax rate or lower treaty rate.

Some outflows of foreign currencies require prior Brazilian Central Bank permission.

VIII ACQUISITION STRUCTURES, RESTRUCTURING AND EXIT CHARGES

i Acquisition

The first thing to be done upon starting a business in Brazil is to register with the National Taxpayer Registry (CNPJ). As starting a company in Brazil is a relatively slow process, some companies sell local ‘shelf companies’, which is perfectly legal in Brazil. These shelf companies have a valid CNPJ registration, as well as all other registrations required to start a company.

No taxes are due at the federal level on the value of a company at incorporation.

ii Reorganisation

Entities are allowed to merge or demerge as they wish, as long as corporate rules are respected. It is important to avoid transactions that may be considered fraudulent by the tax authorities.

iii Exit

A foreign shareholder or quota holder may liquidate the investment at any time. It should be noted that in order to repatriate investment, the local company must present clearances related to labour, tax and social security liabilities.

IX ANTI-AVOIDANCE AND OTHER RELEVANT LEGISLATION

i General anti-avoidance

Several provisions in the CTN prevent taxpayers from availing themselves of beneficial provisions of the law in situations where the principal reasons or one of the primary reasons for their actions is to avoid taxes.

ii Controlled foreign corporations

Different from the international models, Brazilian CFC legislation applies to all controlled and related foreign corporations (not only those resident in low-tax jurisdictions), regardless of whether they are involved in business activities (therefore embracing any kind of foreign income).

Profits will be considered available to the controlling Brazilian company at the time the CFC closes its financial statements at the end of its fiscal year.

iii Transfer pricing

Any operation involving goods, rights, services and interest on a financial transaction conducted by a legal entity located in Brazil with a related entity resident or domiciled abroad will be subject to transfer pricing rules.

Brazilian transfer pricing rules are not the OECD’s concern, and basically provide some import and export pricing methods to build a defence file for corporate income tax purposes.

Costs of goods, services and rights acquired from related parties located outside Brazil are deductible items for corporate income tax purposes to the extent that they do not exceed the ‘prices’ determined in light of one of the transfer pricing available methods. In the event that more than one method is used, the method that provides the greater ‘price’ for the imported goods should be considered by the Brazilian tax authorities as the acceptable import price.

If the import price is equal to or lower than the price determined through one of the methods in question, no adjustment to taxable income is required. On the other hand, if the import price exceeds the price considered to be acceptable under the transfer pricing rules, an addition to taxable income is required.

The Brazilian transfer pricing methods available for import transactions are as follows:

  • a Comparable independent price method (PIC): the PIC method is defined as the weighted8 arithmetical average of sales price of goods, services or rights, identical or similar, verified on the Brazilian or foreign markets, in transactions taken by the company or by others interested,9 under similar payment conditions. For this purpose, only buy-sell transactions carried out by non-related parties must be considered.
  • b Resale price less profit method (PRL): the PRL corresponds to the weighted average resale price of products, services, or rights less unconditional discounts, taxes and contributions on sales and commissions paid (or brokerage fees, or both), and a gross profit margin of (1) 40 per cent for the areas of pharmaceutical products and pharmaceutical chemicals; tobacco products; optical and photographical equipment; cinematographic instruments; machinery, apparatus and equipment for medical and dental use; oil and natural gas extraction; and oil-derived products; (2) 30 per cent for the areas of chemicals, glass and its derivatives, cellulose, paper and its derivatives, and metallurgy; and (3) 20 per cent for other areas. When applying the PRL method, Brazilian taxpayers may use their own prices (wholesale or retail) adopted in transactions with non-related parties.
  • c Production cost plus profit method (CPL): the CPL method has been defined as the weighted average cost incurred to manufacture or produce identical or similar products, services, or rights in the country where they were originally produced, increased for taxes and duties imposed by that country on exportation plus a gross profit margin of 20 per cent. Operating expenses, such as R&D, selling and administrative expenses are generally not considered to be production costs under the CPL method.
  • d Price on quotation at importation method: the prices of imported goods, declared by individuals or entities resident or domiciled in Brazil will be compared with current prices on internationally recognised stock markets and may be adjusted according to the average price.

From a Brazilian corporate income tax perspective, exports of goods, services and rights to related parties located outside Brazil require minimum price levels as foreseen in the transfer pricing regulations. A Brazilian taxpayer will be deemed to have appropriate export prices when the average export sales price is at least 90 per cent of the average sales price of the same goods, services, or rights in the Brazilian market during the same period and under similar payment conditions.

In the event that the Brazilian taxpayer does not pass the ‘90 per cent test’, minimum export prices determined in light of one of the transfer pricing methods will be required. If the export price is equal to or greater than the price determined through one of the methods in question, no adjustment to taxable income is required. If, however, the export price is lower than the price considered to be acceptable under the transfer pricing rules, an addition to taxable income is required.

The Brazilian transfer pricing methods available for export transactions are as follows:

  • a Export sales price method (PVEx): the PVEx method is defined as the weighted average of the export sales price charged to other customers or other national exporters of identical or similar goods, services, or rights, during the same tax year and under similar payment conditions.
  • b Resale price methods (PVA and PVV): the PVA and PVV methods are defined as the weighted average prices of identical or similar goods, services, or rights in the country of destination under similar payment conditions, reduced by the taxes included in the prices charged by that country and a profit margin of:
  • • 15 per cent: calculated on the wholesale price in the country of destination (PVA method); or
  • • 30 per cent: calculated on the retail price in the country of destination (PVV) method.
  • c Purchase or production cost plus taxes and profit method (CAP): the CAP method corresponds to the weighted average cost of acquisition of production of exported goods, services, or rights increased for taxes and duties imposed by Brazil plus a profit margin of 15 per cent on the sum of the costs, taxes and duties.
  • d Price on quotation at exportation method: the prices of exported goods, declared by individuals or entities resident or domiciled in Brazil will be compared with current prices on internationally recognised stock markets and may be adjusted according to the average prices.

Interest paid or credited to a related part, when arising from a loan agreement, will be deductible limited up to the value calculated based at a rate determined by the tax authorities according to the type of loan plus a spread based on the market average rate, but defined by the Brazilian IRS. The rates applicable are those due in Brazilian market sovereign bonds issued in foreign markets in US dollars at a fixed rate; Brazilian market sovereign bonds issued in foreign markets in reais at a fixed rate; or LIBOR for a period of six months.10

iv Tax clearances and rulings

It is not necessary to obtain advance approval from the tax authorities before acquiring a local business. However, in most businesses within the private sector, a tax clearance certificate is required.

X YEAR IN REVIEW

Today, there is a discussion about increasing of collection by federal government to support huge deficit expected from the budget presented for 2016. One of these changes is the recreation of the social contribution on financial transferences (CPMF). In the past, Brazil had a provisory tax on financial transferences that was considered unconstitutional and a provisory social contribution to support social security costs that was used to support others expenses. Scholars in law and economics bring several arguments against the recreation of CPMF, as the undesirable consequence of cumulative taxes on taxation and on products price.

XI OUTLOOK AND CONCLUSIONS

Brazilian legislation is generally subject to periodic changes and also to the courts’ interpretations.

Brazil is a very prosperous country, although its economy is suffering from the recent inflation and recession. Brazil is today is among the 10 biggest ranked economies in the world, and is likely to continue to be attractive to new investors.

Footnotes

1 Silvania Tognetti is a partner at Veirano Advogados. The information in this chapter was accurate as of January 2016.

2 New Article 13 of Law No. 9,718/98, as reformed by Article 7 of Law No. 12,814/13.

3 There is a specific entrepreneur entity, called EIRELI, that can be owned by one individual and there are some disputes to interpret that it can be also formed with a company as its single member.

4 Law 12, 973/14 resulted from Provisional Measure 627/13.

5 Id.

6 In order to help in the identification of these jurisdictions, Brazil enacted a list (Normative Instruction No. 1,037/10): American Samoa, Andorra, Anguilla, Antigua and Barbuda, Aruba, Ascension Island, the Commonwealth of the Bahamas, Bahrain, Barbados, Belize, Bermuda, the British Virgin Islands, Brunei, Campione D’Italia, the Cayman Islands, the Channel Islands, the Cook Islands, the Republic of Costa Rica, Cyprus, Djibouti, Dominica, French Polynesia, Gibraltar, Grenada, Hong Kong, the Island of Saints Peter and Miguelão, the Isle of Man, Kiribati, Labuan, Lebanon, Liberia, Liechtenstein, Macao, Madeira, Maldives, the Marshall Islands, Mauritius, Monaco, the Montserrat Islands, Nauru, the Netherlands Antilles, Niue Island, Norfolk Island, the Sultanate of Oman Panama, Pitcairn Island, Queshm Island, San Marino, Seychelles, Singapore, the Solomon Islands, St Helena Island, St Lucia, the Federation of Saint Kitts and Nevis, Saint Vincent and the Grenadines, Swaziland, Switzerland (suspended according to Executive Declaratory Act of Federal Revenue Department No. 11, from 24 June 2010), Tonga, Tristan da Cunha, Turks and Caicos, the United Arab Emirates, Vanuatu, the Virgin Islands and Western Samoa.

7 Provisional Measure 694, as of 30 September 2015, that is still pending of approval
by Congress.

8 The word ‘weighted’ came into use on 1 January 2013 according to Article 78, Section 1 of Law No. 12,715/12.

9 The phrase ‘taken by itself or by others interested’ came into use on 1 January 2013 according to Article 78, Section 1 of Law No. 12,715/12.

10 Article 38 of Normative Instruction No. 1,312/12.