Is it true that, in Brasil, the sale of software attracts a different and much lower import tax than consulting services?
I’ve been told that the import tax on software is around 19%, as opposed to consulting services, which can be as much as 70%. Is this the case, and would it make sense, wherever fair and possible, to provide services as software
I have two recommendations for you.
First, contact UKTI in Brazil, or your local UK Trade & Investment International Trade Adviser.
Second, based upon my own experiences of exporting software and services to Brazil, I would carefully consider managing your Brazilian sales operation from the USA – in particular Florida. It can be difficult to get a Cariocan (native of Rio de Janeiro) to travel to Sao Paulo to talk business – and vice versa.
Brazil is a big market (predicted soon to be larger than the UK), but the gross domestic product per capita is low and local as well as national issues do not make things easy for a UK SME.
Best of luck
Roger is correct that UKTI is a good starting point but remember there is much they cannot do for you. Paul Smith from UKTI Sao Paulo is a good guy to contact and knows about tech.
I think you have still have to be careful with software in Brazil. I know that this may not be politically correct, but when I was there a couple of years ago it was easy to get versions of any software on the street (and I mean pretty much everything). You need to go and visit and assess if the climate has changed.
Roger is also correct that this is not an easy market for SMEs. You need to have a robust plan, money in the bank and develop some trustworthy partnerships. Have you thought of hiring a Brazilian in the UK? I took some companies to Brazil and the most successful had a Brazilian sales person who lived in London.
Roger and Kevin both make valid points. There is debate in Brazil as to how to categorise software, as a product or service. This complicates the already highly complex taxation situation in Brazil. However, to try and give you a short answer, software that is imported into Brazil on CDs would be subject to the usual taxes applicable to products: 19% import duty, IPI tax (around 8-11%), ICMS (varies from state to state but is 18% in Sao Paulo) and then the social security and integration contribution taxes PIS and COFINS (1.65% and 7.6%). The remittance of payments for software licensing incur a total of 25% income tax and CIDE (use of copyright tax).
Services exported to Brazil are subject to income tax of 15%, ISS service tax of 5% ( some municipalities reduce this to as little as 2%), PIS and COFINS, and CIDE (10%), which with the cascading system of taxation usually comes out at just under 50% total.
The figures above are a bit if a generalisation, and there are many other factors that may affect the final taxation figure, depending on the type of product, service and even the sector of activity.
payments can be used as credits by the customer when he is reselling a product or service as a package in Brazil.
I would advise anyone looking to sell services and software in Brazil to get expert advice on the taxation applicable to their specific product or service. You should always consider entering the Brazilian market with a local partner who has the knowledge and the set-up to be able to deal with the intricacies of this market.
Please get in touch with me in Sao Paulo if you want further information.