PIS and COFINS for beginners
PIS is short for “Programa de Integração Social”. It’s a social contribution tax, payable by corporations, targeted to finance the payment of unemployment insurance and allowance for low paid workers. The current PIS rate is 1.65%.
COFINS stands for “Contribuição para o Financiamento da Seguridade Social”. It’s a federal contribution tax, based on gross revenues of business sales. The current COFINS rate is 7.6%.
PIS and COFINS for advanced.
Social Contributions on Revenues (“PIS” and “COFINS”)
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 ISSQN) 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.
Nowadays PIS/COFINS levy on a combined 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, excepting 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
establishments;
4. payment of leases of buildings, machines and equipment to companies for the use thereof
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 betterments in own real property or real property pertaining to 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 in order to reduce PIS/COFINS that levy on the revenues proceeding from other subsequent 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.
Exceptions
In regard to the taxpayers that are subject to higher tax rates pursuant to the single-phase system of the PIS and COFINS, such as the pharmaceutical and auto industries, pursuant to 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 individual or company domiciled 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.
PIS/COFINS-Import
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 thereof are all the importers and companies or individuals that contract the services of individuals 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.
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2 comments
Tara
January 30, 2012 at 22:29 (UTC -3) Link to this comment
Thanks for the useful information on fuel prices and taxes. Do you have any information on state-level fuel taxation in Brazil? I understand that it varies between states but can be significant. I am struggling to find sites in English that provide information on this issue…. Thanks!
Richard Meijer
February 24, 2012 at 23:18 (UTC -3) Link to this comment
See http://masterclassbrazil.com/managing-a-business-in-brazil/taxes/cidecombustiveis/
The government is playing with this tax a lot as it directly influences the end-user market prices.