On December 30 2004 the Brazilian tax authorities issued Provisional Measure 232 that increased taxation for Brazilian service providers calculating income tax under a presumed-profits method. Taxpayers in Brazil have the option (subject to some restrictions) to calculate corporate income tax and social contribution using an actual-profits method (Lucro Real) or a presumed-profits method (Lucro Presumido).
Under the presumed-profits method, the income is calculated on a quarterly or annually basis on an amount equal to different percentages of gross revenue (based on the entity's activities) and adjusted as determined by the prevailing legislation. Under the provisional measure, the tax and social contribution calculation basis for service providers increased from 32% to 40% of the gross revenue of the entity. Under Provisional Measure 237, which was issued on January 29 2005, the increase will become effective on March 1 2005.
Manaus free-trade zone
Among the several authorized free-trade zones in Brazil, the Manaus free-trade zone is the most extensively developed and benefits from a series of special incentives for the establishment of industries. Goods of foreign origin may enter the free trade zone without payment of customs duties or import taxes. In addition, the IPI (excise tax) on certain commodities, and the ICMS (state value-added tax) on most items, are not applied.
With very few exceptions, imported products used for processing or re-export that are subsequently shipped to other parts of Brazil also qualify for these tax exemptions. ICMS is levied on items produced in the free-trade zone when they are shipped to other areas of Brazil.
Under Law 10,865, which was issued on April 30 2004, the Brazilian tax authorities had granted similar benefits for the Social Integration Program Contribution (PIS) and Contribution for Social Security Financing (COFINS) levied on imports of merchandise into the Manaus free-trade zone or MFTZ. Under the latter, importation of merchandise (raw materials, intermediate products and packaging materials) into the MFTZ and used in manufacturing was subject to a temporary exemption (suspension).
Under Law 11,051, which was issued on December 29 2004, the temporary exemption was converted into a zero rate for the above-mentioned products.
Nélio B Weiss (nelio.weiss@br.pwc.com) and Philippe Jeffrey (philippe.jeffrey@br.pwc.com), São Paulo
