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IPRJ – Corporate Income Tax

IRPJ stands for Imposto de Renda sobre Pessoa Jurídica (Corporate Income Tax). Like CSLL that is outlined in another article IRPJ is a corporate revenue tax that applies to the net profits of any legal entity in Brazil. IRPJ is a federal tax paid by public or private legal entities residing in Brazil, regardless on their purposes or nationality.

As the Brazilian tax legislation changes quite often, it is sensible for companies they employ an experienced accountant so as to avoid any problems with the revenue.

How much IPRJ is paid?

IRPJ is declared through a type approval modality. At the beginning of every year, taxpayers must prepare an annual adjustment declaration, related to the previous year's earnings. Then the values will pass through the Federal Revenue evaluation. The Federal Revenue will assess and subsequently approve or reject the submission. This process is web based and runs online.

In Brazil, the IRPJ taxation is progressive, meaning that the more a company earns, the more the company will pay. This way, the tax's aliquots are directly proportional to the taxpayer's income and will be calculated on this basis.

The tax calculation basis is 15% on the companies' earnings, plus a surtax of 10% (on annual income over BRL 240,000.00).

In order to organize it, the Federal Revenue releases annual progressive scales, determining the percentages to be calculated over the companies' income.

An additional determining factor as to how much companies will pay in IRPJ is the sector that they are engaged in. The aliquots can be different for each area.

How is IRPJ Collected?

According to its legal form and profitability, companies will pay IRPJ following those taxation arrangements, foreseen in the Brazilian tax legislation:

  • Lucro Real
  • Lucro Presumido
  • Lucro Arbitrado
  • Simples Nacional (Small businesses and mini or small sized companies must pay IRPJ and other tributes like CSLL, COFINS and PIS

Deductions

Corporate Tax deductions include:

  • Losses (Upcoming legislation will mean that only 30% of any current year's taxable income can be written off as a loss)
  • Depreciation is deducted using the straight line method
  • Companies involved in technical research can use accelerated depreciation
  • There is no company consolidation for tax purposes
  • New capitalization rules (relating to interest expenses) took effect on January 1, 2010

Simples Nacional Explained

This is an optional taxation regime that allows the unified collection of municipal, state and federal taxes. In addition to unifying all taxes, the rates are lower compared to the payment of all of them separately and progressively. It is always calculated based on the monthly gross revenue of the company.

Who can opt for Simples Nacional?

This taxation regime benefits companies that are considered to be micro or small size. The definitions that are used in Brazil to categorize these types of companies are:

  • Micro sized companies, known asMicroempresa or ME in Portuguese, are those that have an annual gross income equal to or lower than BRL 120 000
  • Small sized companies, known asEmpresa de Pequeno Porte or EPP in Portuguese, are those that register an annual gross income higher than BRL 120 000 or equal to/ less than BRL 1 200 000

What other advantages are provided by Simples Nacional?

In addition to having lower rates for several taxes, Simples Nacional will also benefit from:

  • Exemption of payment ofcontribution to social services
  • Exemption of payment of theContribuição Sindical Patronal (Employer’s Syndicate Contribution)
  • Legal entities do not need to withhold federal taxes and contributions at the source
  • Exemption of taxes withheld at the source or at the Annual Income Tax Return for the amounts paid to the partner of the company which are not related to salary, rent or rendered services

Restrictions for Simples Nacional

Not all companies qualify for the benefits of Simples Nacional. Some examples of company profiles that cannot opt for Simples Nacional, even if they comply with all definitions stated above are those that:

  • Have other companies as shareholders
  • Are a branch, agency or representation office, in Brazil, of a foreign company
  • Have an individual shareholder that own shares in another company that already benefits fromSimples Nacional, when the combined gross revenue is above BRL 3.6 million
  • Have a partner or representative that own more than 10% of the shares in another company that has not opted forSimples Nacional, when the combined gross revenue is above BRL 3.6 million
  • Have a partner, representative or administrator that has ownership in another company with the combined gross revenue that surpasses BRL 3.6 million
  • Are a cooperative
  • Are a shareholder in another company
  • Perform determined activities within sectors such as finance, insurance, transport and others
  • Result from the division from other companies or are a spin-off which occurred over the last 5 years
  • Corporations

Taxes included in Simples Nacional

The taxes that are unified by Simples Nacional are:

  • CPP
  • ISS
  • COFINS
  • IPRJ
  • CSLL
  • PIS
  • IPI
  • ICMS

Taxes other than those listed above, are not part of Simples Nacional and must be calculated and paid separately.

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