Contribution for the Financing of Social Security (COFINS) is a federal contribution, tax, levied on gross revenue of businesses in general, intended to finance social security . Its rate is 7.6% for business income taxed by real (systematic non-cumulative) and 3.0% for the other. It is based on calculation:
- The monthly revenue (gross revenue from the sale of goods and services), or
- The total revenue of the corporation.
The term “social security” must be understood within its own chapter of the Federal Constitution of 1988 , and covers social security, health and social care.
Contributors to the COFINS funds are companies, including people they treated by the law of income tax, except for micro-enterprises and small businesses subject to the regime of the Simples Nacional which collects the contribution, and other federal taxes (IRPJ, CSLL, PIS , IPI, ICMS and ISS) in a single collection that encompasses all of these taxes.
The incidence of COFINS is direct and not cumulative, with monthly assessment. Companies that report earnings for the systematic Assumed Income, however, suffer the impact of the systematic cumulative COFINS. Some activities and specific products also remained in the systematic cumulative. There are even companies that are subject to the accumulation of only part of their revenues. The other party subject to systematic non-cumulative. Those features make this tribute, along with the Contribution to PIS, extremely complex and also for the taxpayer to the tax authorities, beyond that it forms the second highest contributor in terms of tax collecting in Brazil by the Department of Revenue , after the Income Tax.
The contribution for the Financing of Social Security (“COFINS”) and the Social Integration
Program (“PIS”) levy on the revenues received by the Brazilian legal entities under private law in general, including those similar to them by the law of income tax, except for micro-enterprises and small businesses subject to the regime of the National Simple (Lc123/2007), which collect the contribution, and other federal taxes (income tax, social contribution, PIS, IPI and now include the GST and ISS) code in a single collection that covers all these tributes.
Credits to your PIS/Cofins
Laws nos. 10637/02 and 10833/03 introduced the new system for verification of PIS/COFINS [Social Integration Program/Contribution for Social Security], which applies to the majority of the companies. The intent of the new legislation is to prevent the accumulation of this contribution by way of grant of credits in the acquisition of goods and services needed in the company’s activities.
Combined rate PIS/Cofins
Nowadays PIS/COFINS levy on a joint rate of 9.25% (COFINS – 7.6% and PIS – 1.65%). Under the new form of calculation of PIS and COFINS, the taxpayer is entitled to the credit related to the contribution pursuing from the operations of:
1. goods acquired for purposes of resale, except for those goods expressly referred to;
2. goods and services used as input for the rendering of services and for the production or
manufacturing of goods or products addressed to sale, including fuels and lubricants;
3. electrical and heat powers, including steam Power, consumed in the legal entity’s
4. payment of leases of buildings, machines and equipment to companies for the use in the company’s operations;
5. amount of the considerations of commercial lease transactions of legal entity;
6. machines, equipment and other goods incorporated to the fixed assets acquired or
manufactured to be leased to third parties or used in the manufacturing of goods intended
for sale or in the rendering of services;
7. buildings and betterment in own real property or real property of third parties
used in the corporate activities;
8. goods received in return;
9. storage of good and freight in the sale transaction, for cases (i) and (ii), when the burden is supported by the seller.
The credits may be used by the company to cut PIS/COFINS that levy on the revenues proceeding from other later transactions. This form does not apply to the cooperative organizations, immune or exempt companies, companies taxed by income tax based on the assumed or arbitrated profit, legal entities that have adopted the SIMPLES [Unified Tax Collection System], to the revenues arising out of rendering of telecommunication services, arising out of services of call center, telemarketing, phone collecting and phone services companies in general, among others.
In regard to the taxpayers that are subject to higher tax rates by the single-phase system of the PIS and COFINS, such as the pharmaceutical and auto industries, by Law No. 10865 of April 30, 2004 they then are entitled to credits under the non-accumulation system.
Further, there exists an express provision determining that PIS and COFINS does not apply over the revenues resulting from the export of products to abroad, supply of services to an person or company living abroad, whose payment represents the inflow of foreign currency and over the revenues of sales to trading companies with the specific purpose of export. Another important aspect concerns the reduction to zero of the tax rate of these contributions over the financial revenues (except those pursuing from interest on own capital and hedge) as of August 2004, provided that the taxpayer is covered in the non-accumulation system of the tax.
Moreover, Law No. 10865/04 introduced the taxation of PIS and COFINS on imported products and services. This law determines that PIS and COFINS are due in the entry of foreign goods in Brazil and in the payment, crediting, delivery, the use or remittance of amounts to foreign residents or domiciled abroad as payment for the services supplied.
The taxpayers are all the importers and companies or people that contract the services of people or companies domiciled abroad. The general tax rate of the PIS and COFINS – Import contributions are, respectively, 1.65% and 7.6% and the tax basis shall be as follows:
- value for customs purposes adopted as the tax basis in the import tax, plus the State Sales tax (ICMS) and the PIS and COFINS amounts. In the import of services the tax basis is the price of the service plus Service tax (ISS) and the PIS and COFINS contributions.