LOCAL SERVICES - TAX TREATMENT

Local sales are taxed by PIS/COFINS (Federal VAT) and ISS (Service Tax).

PIS/COFINS rate is 9.25% (non-cumulative tax payers) and 3.65% (cumulative taxpayers). ISS rate depends on the municipality regulation (rate may vary from 2% to 5%).

Assumptions:
PIS/COFINS: 9.25%
ISS: 5%
Cost Service+Markup: BRL 100.000

Illustrative Calculation:
Cost Service+Markup: BRL 100.000
PIS/COFINS: BRL 10.787
ISS: BRL 5.830
Gross Service Revenue: BRL 116.618

The journal entries are:

D - PIS/COFINS (P/L) - BRL 10.787
D - ISS (P/L) - BRL 5.830

C - PIS/COFINS payable - BRL 10.787
C - ISS payable - BRL 5.830



D - Account Receivable - BRL 116.618
C - Gross Service Revenue - BRL 116.618

Buyers side - credit:
Buyers can recognize the credit of PIS/COFINS, provided that the services are input of its main activity. For example, if buyer provides marketing services, and then subcontract services associated with marketing, PIS/COFINS are creditable.

ISS is a cumulative tax, and therefore, it is not possible to credit.