Understanding Brazil's Taxes on Imports

UNDERSTANDING BRAZIL'S TAXES ON IMPORTS
ARTICLE BY ROSALIENE BACCHUS

Federal taxes. State taxes. There is no escape. Except for special cases, Customs officials at the Brazilian
port or airport will not release your exports until the importer pays up all taxes due. SISCOMEX – acronym for
Brazil’s integrated computerized system for handling foreign trade transactions – automatically calculates the
taxes due on the shipment. Taxes are based on the value of your goods in Brazilian reais, using the day’s
conversion rate. Although the importer is responsible for paying these taxes, it is important for you, the
exporter, to know how these taxes will affect the competitiveness of your product on the Brazilian market.

Taxes applied to imported goods are listed below, by order of application. These taxes are more commonly
known by their Portuguese acronyms, shown in parenthesis.

Merchant Marine Renewal Tax (AFRMM)
Import Tax (II)
Industrialized Products Tax (IPI)
Merchandise and Services Circulation Tax (ICMS)
Contribution to the Social Integration Program and Civil Service Asset Formation Program (PIS/PASEP)
Contribution to Social Security Financing (COFINS)

The AFRMM is a federal social contribution instituted for the development of Brazil’s merchant marine and
naval construction industry. It applies only to imports by sea and is a 25 percent tax on the ocean freight plus
all port handling charges.

The Import Tax (II) protects Brazil’s domestic industries and produce from foreign competition. These tariff
rates range from zero to 35 percent according to the product. In keeping with Brazil’s economic policies, these
rates can change at any time. The import tariff rate is applied to the “customs value” of the goods: the sum of
the cost price, insurance covering the goods during shipment, and ocean or air freight.

The Industrialized Products Tax (IPI) affects both national and foreign products modified in some way for
consumption or use. Rates generally vary from zero to 20 percent. The customs value of the goods plus the
Import Tax (II) value form the basis for calculating the value of the IPI.

The Merchandize and Services Circulation Tax (ICMS) is a state government value-added tax. State
governments levy this tax on all local and foreign products circulating within and between Brazilian states.
Rates range from zero for essential products to 25 percent for luxury items. Rates also vary by state: Most
states apply an 18 percent rate. Calculation of the ICMS is complex since it includes the customs value, II, IPI,
customs duties related to the import expedition process, and the ICMS itself.

The PIS/PASEP and COFINS are federal social contributions designed for funding social security. Foreign
imports share the same rates applicable to domestic goods. PIS/PASEP is 1.65 percent; COFINS is 7.6
percent. It is fortunate that the System calculates these taxes as they require highly complex formulas. The
base amounts for calculation include the taxes themselves: total of the customs value, ICMS, PIS/PASEP, and
COFINS.

The Federal Revenue Secretariat provides a “Tribute and Administrative Simulator for Imports” on their Web
site (www4.receita.fazenda.gov.br/simulador/). A fictional shipment of golf balls to São Paulo yielded the
results shown below.

Customs Value

Import Tax (20%)

IPI (20%)

PIS/PASEP (1.65%)

COFINS (7.6%)

ICMS (18%)

The ICMS value is an estimate as the Simulator does not provide the result. US dollar values for the PIS,
COFINS and ICMS are based on the conversion rate of R$1.8203 on the date simulated.
The tax burden on imports can be discouraging. Success lies in offering products not available on the local
market or those with a unique feature, determined by a careful market analysis and strategy.

Article published in the Brazil Explore Magazine, Los Angeles, California, USA, April 2010.
Reprinted with permission.

- US$20,000.00
- US$ 4,000.00
- US$ 4,800.00
- US$ 478.58
- US$ 2,204.37
- US$ 5,756.93