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COFINS – Federal Social Contribution

COFINS stand for Contribuição para o Financiamento da Seguridade Social (Contribution for Social Security Financing). It is a federal social contribution levied on the gross revenue of businesses in general. All private legal entities or equivalent are qualified as Cofins taxpayers. 

Together with other social contributions, such as PIS and INSS, Cofins is destined to finance the welfare, health and social assistance policies in Brazil. After the income tax, Cofins is the second largest source of tax collection by the Brazilian government.

All private sector companies are subject to this tax, except:

  • Micro-enterprises
  • Small businesses who opted for the SIMPLES Corporate Tax method
  • Associations, unions, and federations
  • Co-operative companies

Like the VAT encountered throughout western economies, these two taxes are non-cumulative. The company must pay any difference between the amount of COFINS / PIS collected on sales, and the amount paid on purchases

Aliquots

The calculation basis for the Cofins contribution is the total gross revenue of a company during the month. 

Lucro Real

  • Commerce, Industry and Services: 7.6%
  • Non-cumulative regime. In this regime, the value of the contribution is calculated on the company’s monthly revenue, understood as the total revenues earned by the corporation minus various values that are configured as credits foreseen in the legislation. 

Lucro Presumido

  • Commerce, Industry and Services: 3.0%
  • Cumulative regime. In this regime, there is no deductibility of credits. The value of the contribution is calculated directly on the calculation basis. 

Simples Nacional

  • Commerce and Industry: from 0.00% to 1.60%
  • Movable property lease: 0.00% to 2.42%
  • Services: from 1.28% to 2.63%

The Simples Nacional arrangement has a unique aliquot for all the taxes. The aliquots vary accordingly to the company's annual income.

Exemptions

The following activities are exempted from paying the Cofins and for that can be deducted from the calculation basis of the contribution:

  • Returned and cancelled sales
  • Fixed asset sale income
  • Revenues generated from the sale of electricity by the Itaipu Hydroelectric Power Plant 
  • Resources received as transfers, from the general budget of the Union, states, Federal District and municipalities to companies and public joint stock companies
  • Revenue related to the export of goods abroad 
  • Revenue from services rendered to an individual or legal entity resident or domiciled abroad, whose payment represents inflow of foreign exchange 
  • Income on the supply of goods or services for use or purchase on board ships and aircraft in international traffic, when the payment is made in convertible currency 
  • Earned by Brazilian shipyards in construction activities, maintenance, modernisation, conversion and repair of boats registered at the Special Brazilian Registry (REB)
  • The freight of goods transported by ship from Brazil to countries abroad registered in the REB
  • Revenue from the freight of transported goods between the country and abroad by ships registered in REB 
  • Income from sales by the producer-seller to trading companies, provided to be exported abroad

Calculation and Payment

Taxpayers are required to calculate and pay COFINS each month. The deadline is the last working day of the second week following the month of reference.

This calculation is based on monthly billings, defined as the turnover of sales of goods and services, whatever their nature and accounting classification, excluding the following:

  • The IPI tax, if clearly identified on invoices
  • The ICMS tax if clearly identified on invoices
  • Cancelled sales and unconditional discounts
  • Income and dividends received from financial investments
  • The proceeds from the sale of fixed assets
  • The turnover from exportation
  • Financial income is included in the calculation basis

Case Study

Calculation and accounting of COFINS:

Sale of goods in Brazil (all taxes incl.): 1,750,000
Services (all taxes incl.): 800,000
a) Total: 2,550,000

Deductions allowed:
Cancelled sales: 50,000 75,000
Unconditional discounts: 30,000 40,000
IPI: 300,000 375,000

  1. b) Total Deductions: 490,000
  2. c) Financial income: 130,000

Calculation

Total basis for calculation (a – b + c):  2,190,000
Rate of COFINS: 3%
Amount of CONFINS due for January:
65,700

COFINS are not due on exports when they generate foreign exchange.

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