Return to Taxes


Tax on the Circulation of Products and Services (“ICMS”; “Imposto sobre Operações relativas à Circulação de Mercadorias e Prestação de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação”)

For beginners

The Tax on Circulation of Goods and Services (ICMS) is the main State tax, and is due on operations involving circulation of goods (including manufacturing, marketing, and imports) and on interstate and inter-municipal transport and communications services. ICMS is non-cumulative, and thus tax due may be offset by credits arising from the purchase of raw materials, intermediary products, and packaging materials. which allows the taxpayer to record input tax credits from the ICMS paid on the purchase of raw materials, intermediary products, packaging materials. Tax credits for goods destined to become fixed assets may be accepted, subject to certain restrictions. Intrastate rates normally vary from 7% to 25% (the average rate in the states of RJ, SP, MG and RS is 18%, whereas for other states and the DF it is 17%). Rates applied to interstate commerce are 7% or 12%, depending on the destination. Export goods are exempted from ICMS.


ICMS is a state tax for goods and services. The tax is payable at all stages of sale from manufacture to consumer. The ICMS tax rates range from 7% to 25%. Similar to the IPI tax, the ICMS tax is another tax that is due over the sale of products and, also, the supply of services, due upon the import of a product into Brazil and the sale or transfer thereof within Brazil, or upon the supply of communication services and intra or interstate transportation, upon the supply of the service.

The ICMS tax rates and the tax benefits vary from state to state and also according to the type of operation (e.g. intra or interstate sale of products, communication services or transportation, etc). In the state of São Paulo the most common tax rates are currently

  1. 12% over transportation services
  2. 18% over imported products, sold or transferred
  3. 25% over communication services.


According to Constitutional Amendment (EC) no. 33/01, ICMS is due over imports by companies and individuals, even when not considered taxpayers for the purposes of ICMS payment, at a tax rate of 18%. The other tax rates may be applied depending on the product/service. The tax rates may also vary in interstate operations (usually 7% or 12% depending on the state of destiny of the products and services).

Similar to IPI, the ICMS system allows a certain taxpayer to offset the ICMS paid upon the
purchase of products and services with the tax amount due in subsequent taxable operations (e.g. sale of products and services subject to ICMS). The difference among such amounts shall consist of the amount due to the state.
As of Nov. 1, 1996 importers/buyers may be credited by the ICMS paid over imports and local purchases of fixed assets (which was prohibited up to Nov. 1, 1996). However, Supplementary Law (LC) No. 102/00 introduced a new system for the use of ICMS credits upon the purchase of fixed assets so that the taxpayer may record the previous mentioned credits at a 1/48 monthly rate.

In regard to taxpayers that have excess ICMS tax credit, some state laws establish options that allow the taxpayer to transfer its credits. In the sate of São Paulo, for example, the state law offers three options for the taxpayer that has an excess of ICMS tax credit to use the tax already paid (instead of offsetting same with ICMS debt), namely:

  1. transfer of ICMS credits to any of its affiliates or offices established in the state of São Paulo
  2. transfer the credits to an interdependent company, as defined by the law, or
  3. use the credits to pay suppliers of raw materials and/or certain fixed assets.
Other state laws may establish other options for the use of ICMS credits.

Tax competition between states

Several Brazilian states since the 1990s, provide incentives for industrial firms that make investments in their territories, expecting have a greater creation of jobs, contributing to its economic development. Ceará the main benefit is a reduction granted in the form of loan or deferral of ICMS (Tax on Circulation of Goods and Services) to be collected by companies covered by the state politics, having been the footwear industry to be of significant interest for the industrialization policy of the state, because it is intensive in labor.