Taxes on the Importation of Services

Planning to provide services to a Brazilian company? You might want to reconsider your prices. Why? Because it may end up costing your Brazilian customer far more than they can afford.

Brazilians that pay for services performed outside Brazil (that is, they import services) are heavily taxed. A US$100,000 service could end up costing more than US$135,000 after adding up all the taxes.

There are six different taxes applied to transactions involving the importation of services. They are ISS, IRRF, CIDE, PIS, COFINS, and IOF. In general, all of these taxes must be paid at the time the Brazilian entity makes payment to the foreign contractor.

ISS is the municipal tax paid on services. ISS ranges from 2% to 5% and applies both to services completed in Brazil and services performed abroad.

IRRF is income tax. In this case, the Brazilian company has to withhold the amount owed by the foreign service provider as income tax. The rate is normally 15% but can reach 25% if the service provider is in a tax haven.

CIDE, PIS, and COFINS are federal contributions used to stimulate Brazil’s technological development and fund social security. Here their respective rates are 10%, 1.65%, and 7.60%.

IOF is a federal tax charged on financial transactions. Considering payment to a foreign entity requires conversion to local currency, there’ll be a tax of 0.38%.

Now that you know what taxes apply to transactions involving the importation of services, it’s time to plan your fees to stay competitive.