CORPORATE INCOME TAXES

When opting for one method for assessment of tax on income, a Brazilian company should consider all advantages and advantages of each assessment method. For a better understanding of the systems and

respective rates in effect in Brazil, we present the following guide:

For companies subject to Corporate Income Tax (IRPJ), there are three methods for assessing
taxes on income: Taxable Income, Assumed Income and Arbitrated Profit.

As from the calendar year 1996, regardless of their type of business organization and nature of activity performed, legal entities started to pay IRPJ at a rate of 15% (fifteen per cent), applicable on the calculation base assessed either through the taxable income, assumed income or arbitrated method.
On the portion of taxable, assumed or arbitrated profit exceeding the value resulting from the multiplication of R$ 20,000.00 (twenty thousand Reais) by the number of months of the respective assessment period, there is an additional that should be taxed at a rate of 10% (ten percent).

CSLL follows the same system used for assessment and payment of IRPJ and on the amount assessed it should be applied a rate of 9%.

Presumed Profit Method:
It it’s the mandatory method for companies with total revenue over R$ 48 million during the calendar year previous to the assessment, as well as entities that take part of the Brazilian Financial System and that have profits, yielding or capital gains coming from abroad.

Annual Taxable Income System (monthly payment):
In this method of taxation, IRJP and CSLL are monthly calculated, based on revenue. Percentages should be applied on the calculation base (defined in law, as per the activity performed by the
company). This should be added of other non-operating revenue and on that sum it is applied the IRJP rate. An adjust balance sheet has to be prepared in December to compare what was paid during the calendar year with assumed profit and actual result of the company. From that comparison, if it is verified that the amount paid as per the assumed profit (as anticipation) exceeds what was assessed in the adjustment balance sheet, the company should request the refund of what was overpaid or offset the amount with taxes payable of the same type or of a different nature, by means of a request to the Brazilian
Revenue and Customs Secretariat.