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Brazil: Withholding tax rules on license to distribute or commercialise software

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The federal Brazilian tax authorities (RFB) published a declaratory act regarding the withholding tax on payments abroad for a license to distribute or commercialise software.

On December 26 2017, the federal Brazilian tax authorities (RFB) published Declaratory Interpretative Act 7/2017 (dated December 21 2017) concerning the application of the withholding tax on payments abroad for the right to distribute or commercialise software (ADI 7/2017).

The ADI 7/2017 provides that payments, credits or remittances to a non-resident in consideration for the right to distribute or commercialise software should be classified within the concept of royalty and be subject to income withholding tax at a rate of 15%. However, where the beneficiary of the payment is resident or domiciled in a tax haven, the rate of 25% should be applied.

The decision follows a recent trend of decisions including Solução de Divergência 18/2017 (dated March 27 2017) and Solução de Consulta 154/2016 (dated November 18 2016) which modified the RFB's previous position in relation to this issue. The ADI 7/2017 confirms that this decision modifies the conclusions of contrary positions in Soluções de Consulta/Soluções de Divergência (types of published rulings) issued before the date of publication of the ADI 7/2017.

Although not law, the ADI 7/2017 does provide clarity on how the RFB will treat such payments going forward. As such, taxpayers with transactions abroad relating to acquiring rights to distribute or commercialise software in Brazil should revisit these transactions to determine how the decision may impact their arrangements, including deductibility.

Updates to the Brazilian tax haven and privileged tax regime list

On December 26 2017, the RFB published Normative Instruction 1,773/2017 (dated December 21 2017) providing certain updates to the list of tax havens and privileged tax regimes (NI 1,773/2017).

The NI 1,773/2017 excludes Singapore, Costa Rica and Madeira Islands from the list of tax havens (referred to as the 'black list'). However, the following were included as privileged tax regimes (referred to as the 'grey list'):

  • Costa Rica – the 'Zona Franca' (free-trade zone) regime

  • Portugal – the Centro Internacional de Negocios da Madeira (Centre of International Business) regime

  • Singapore – various special regimes subject to differentiated tax rates, including related to leasing, finance and treasury, insurance, and shipping, among others.

Immaterial changes were also made to the definition of 'holding company' for the purposes of defining Danish and Dutch privileged tax regimes. There was no modification to include Austrian holding companies in the definition, which is interesting given the wording of the Austrian privileged tax regime is the same as the wording for Danish and Dutch companies.

Generally speaking, tax havens and privileged tax regimes are subject to more restrictive thin capitalisation rules, to transfer pricing analysis regardless of whether the foreign party is related to the Brazilian entity as well as various adverse consequences/restrictions under the Brazilian controlled foreign corporation (CFC) rules. Further, payments to tax havens generally trigger higher rates of withholding taxes than to other countries (both on remittances, sales and applications in Brazilian capital markets).

The effects were to take effect from January 1 2018. Although the NI 1,773/2017 is not law, it does provide clarity on how the RFB will treat such jurisdictions and regimes going forward.




Mark Conomy

Fernando Giacobbo ( and Mark Conomy (, São Paulo



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