Brazil's Tax System and Structure in 2025

Brazil operates under a constitutional tax framework, where the Federal Constitution delineates taxation authority among federal, state, and municipal governments. Each level maintains its own revenue agency, independently administering taxes within their jurisdiction. The federal tax administration is organized across multiple tiers—district, regional, state, and municipal—ensuring comprehensive oversight of tax compliance.

The National Tax Code (Lei Nº 5172/1966) establishes foundational rules for Brazil’s tax legislation. Additional regulations, including statutory laws, decrees, international tax treaties, administrative rulings, and technical guidelines, further shape tax enforcement. These instruments collectively influence how various taxes are interpreted and applied across sectors.

Tax disputes in Brazil are commonly resolved through judicial channels, often reaching the Federal Supreme Court. Given the complexity of tax law and procedural delays, litigation can extend over several years, making proactive compliance and strategic planning essential for businesses operating in the country.

A landmark reform passed by the Chamber of Deputies on July 7, 2023, aims to consolidate five existing indirect taxes—Industrial Product Tax (IPI), Circulation of Goods and Services Tax (ICMS), Service Tax (ISS), and the PIS and COFINS levies—into a unified Value-Added Tax (IVA). Starting in 2026, the federal government will introduce the Contribution on Goods and Services (CBS), while states and municipalities will implement the Tax on Goods and Services (IBS). This bill is currently under review by the Federal Senate and may undergo amendments before being signed into law by President Lula. Once enacted, it will mark one of the most significant transformations in Brazil’s fiscal history.

Federal tax information can be accessed via the official portal: www.gov.br/receitafederal/pt-br

Key Taxes and Rates in Brazil

Brazil’s tax system is known for its complexity, frequent regulatory updates, and stringent enforcement. Penalties for non-compliance are substantial, prompting most companies to rely on professional advisors for accurate reporting and filing. Below is an overview of major taxes applicable as of 2025.

Corporate Income Tax

Brazil follows a worldwide income taxation model, requiring corporations to pay tax on global profits and capital gains. The primary federal levies include Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).

Three calculation methods are available: Real Profit (Lucro Real), Presumed Profit (Lucro Presumido), and Simplified Regime (Simples Nacional), each tailored to business size and structure.

Under the Real or Presumed Profit methods, IRPJ is levied at 15%, with an additional 10% surcharge on annual profits exceeding BRL 240,000. The CSLL rate stands at 9%. Both use adjusted accounting profit as the tax base, incorporating specific add-backs and exclusions per tax regulations.

The Simples Nacional regime simplifies tax obligations for micro and small enterprises (ME and EPP). It integrates multiple federal, state, and municipal taxes—including IRPJ, CSLL, PIS, COFINS, IPI, ICMS, ISS, and social security contributions—into a single payment based on gross revenue. Applicable rates vary from 4% to 33%, depending on business activity and monthly turnover, as defined by government schedules.

Individual Income Tax (IRPF)

Residents of Brazil are taxed on their worldwide income, with progressive rates applied annually. In certain cases, such as employment income, withholding occurs monthly. Capital gains and select investment returns are typically assessed separately and taxed accordingly. Withholding at source applies to various forms of personal income, including salaries, dividends, and interest.

As of May 1, 2023, Provisional Measure 1171/23 raised the monthly tax exemption threshold to BRL 2,112. The current progressive brackets are as follows:

• No tax if monthly taxable income does not exceed BRL 2,112 (0% rate).
• 7.5% rate for income between BRL 2,112.01 and BRL 2,826.65, with a deduction of BRL 158.40.
• 15% rate for income between BRL 2,826.66 and BRL 3,751.05, deducting BRL 370.40.
• 22.5% rate for income between BRL 3,751.06 and BRL 4,664.68, deducting BRL 651.73.
• 27.5% rate for income above BRL 4,664.68, with a BRL 884.96 deduction.

Non-residents generally face a flat 15% rate on Brazilian-sourced income unless otherwise specified. For capital gains, non-residents are subject to the same progressive scale (15%-22.5%) as residents, aligning treatment across taxpayer categories.

PIS and COFINS – Revenue-Based Levies

PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social) are federal taxes imposed on company revenues and import transactions. They operate under two systems: cumulative and non-cumulative.

In the cumulative regime, rates are 0.65% (PIS) and 3% (COFINS), with no input credit allowed. In the non-cumulative model, businesses can offset prior-period payments, with rates set at 1.65% (PIS) and 7.6% (COFINS). Selection depends on the company’s overall tax regime and sector-specific rules.

Value-Added Taxes in Practice

Although Brazil lacks a unified VAT, two key indirect taxes function similarly by allowing credit mechanisms across production stages.

• Industrialized Products Tax (IPI): A federal excise duty applied to domestically manufactured goods and imports. Rates range from 0% to 55%, averaging around 16%. Input credits are permitted for raw materials and packaging that incurred IPI. Recent relief measures—including Decree No. 11158 and 11182 in 2022—extended reductions of up to 35% on various industrial products, supporting economic recovery and preserving incentives in the Manaus Free Trade Zone.
• Circulation of Goods and Services Tax (ICMS): Administered by individual states, ICMS governs inter-state and intra-state movement of goods and services like telecommunications. Domestic rates typically fall between 17% and 20%, while cross-border sales attract lower rates of 4% to 12%. Destination states may levy a supplementary ICMS equal to the difference between local and origin-state rates, payable by the buyer.

Financial Transaction Tax (IOF)

The Federal Financial Operations Tax (IOF) applies to credit, foreign exchange, insurance, and securities transactions. Rates vary by transaction type. As part of Brazil’s OECD accession process, former President Bolsonaro enacted Decree No. 11153 in July 2022, initiating a phased reduction of IOF on foreign exchange operations. The government has committed to eliminating this tax entirely by 2028, enhancing competitiveness and reducing barriers to international capital flows.

Municipal Service Tax (ISS/ISSQN)

ISS is a municipal tax levied on a broad range of services, excluding those covered under ICMS (e.g., transportation and telecom). Rates range from 2% to 5%, varying by city and service classification. Municipalities retain autonomy in defining taxable activities and setting precise rates, leading to significant local variation.

Digital Services Tax

As of 2025, Brazil does not impose a dedicated digital services tax. However, digital platforms providing taxable services within Brazilian municipalities may still be subject to ISS, depending on local interpretations and nexus rules.

Carbon and Environmental Levies

Brazil currently lacks a formal carbon pricing mechanism or emissions trading system (ETS). While environmental policies exist to promote sustainability, especially in the Amazon region, no nationwide carbon tax has been implemented. Future reforms may explore green taxation as part of broader climate commitments.

SailGlobal offers expert advisory services for international businesses navigating Brazil’s evolving tax landscape. From transfer pricing documentation to payroll compliance and expatriate tax planning, our team ensures seamless integration with local requirements while optimizing cross-border efficiency.