LOCAL SALES - TAX TREATMENT

The taxation applicable on local sales depends on some variable such as:

- type of product
- buyer/seller location
- type of industry
- application of tax incentives
- if buyer is end-consumer

In an ordinary scenario, the tax treatment is the following:

Assumptions


Buyer Location: São Paulo
Seller Location: São Paulo
Industry: Equipment Manufacturer
No tax incentives
Buyer is not end-consumer
Product: Equipment
Cost + Markup: BRL 100.000
PIS/COFINS: 9.25% (applicable for non-cumulative tax payers).
ICMS: 18% (applicable for intrastate sales)
IPI: 15% (depends on Hscode - common rate 10% to 20%)

Illustrative Calculation


Cost + Markup: BRL 100.000
PIS/COFINS: 12.714
ICMS: 24.742
IPI: 20.618
Gross Sales: 158.075

Formula:
PIS/COFINS: [ CIF+Markup / ( 1 - ICMS% - PIS/COFINS%) ] x PIS/COFINS%

ICMS: [ CIF+Markup / ( 1 - ICMS% - PIS/COFINS%) ] x ICMS%
IPI: [ CIF+Markup / ( 1 - ICMS% - PIS/COFINS%) ] x IPI%


The journal entries are:

D - PIS/COFINS (P/L) - BRL 12.714
D - ICMS (P/L) - BRL 24.742
D - IPI (P/L) - BRL 20.618

C - PIS/COFINS payable - BRL 12.714
C - ICMS payable - BRL 24.742
C - IPI payable - BRL 20.618


D - Account Receivable - BRL 158.075
C - Gross Revenue - BRL 158.075

Buyers - Credit:


Buyers can credit the PIS/COFINS, ICMS and IPI upon acquisition.