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Taxing digital goods in the State of Rio de Janeiro

Gabriel Caldiron Rezende and Rogério Gaspari Coelho of Machado Associados discuss how the new Rio de Janeiro state law has changed the taxation of digital goods.

The State of Rio de Janeiro has recently enacted Law No. 8795/20 changing the State VAT (ICMS) regulations to address the levy of the ICMS on the rendering of communication services and sales of digital goods by means of electronic transfer of data, as well as on transactions with goods sold by means of e-commerce platforms. 

The law intends to set right the state’s legislation to ICMS Agreement 106/17, enacted by the National Council of Financial Policy (CONFAZ), to address the ICMS levy on transactions with digital goods. 

CONFAZ is an intergovernmental body that, in short, congregates the states and the federal district to reach agreements about taxation and the granting of tax benefits of ICMS. CONFAZ agreements must comply with the Constitution and Supplementary Law No. 87/96, which sets guidelines to the levy and collection of ICMS, which are applicable to all states and the federal district. 

Nevertheless, as mentioned previously, when analysing the legislation of the State of São Paulo based on the same ICMS Agreement 106/17, this rule violates the federal constitution, which grants a supplementary law to define ICMS triggering events, taxable bases, taxpayers, and the state to which the tax must be paid. As the agreement defines the taxpayer and the state to which the tax should be paid, it is unconstitutional. The same rationale applies to Rio de Janeiro State Law No. 8795/20 which, which is based on an unconstitutional agreement, and enlarges the list of ICMS taxpayers and parties liable for payment. 

The law classifies taxpayers as: (a) the entity that owns the website or electronic platform that sells or makes available digital goods, even in the case of periodic payments, by means of electronic transfer of data; and (b) the importer of digital goods. Moreover, it ascribes the liability for the payment of the tax to payment intermediaries, including credit/debit card operators and companies that manage other means of payment, or entities responsible for the exchange in the case of imported digital goods.

Furthermore, the said law also addresses transactions carried out with non-digital goods by the means of electronic platforms. In this case, it establishes that the owner of a website or electronic platform that offers, gains customers or sells goods by means of an agreement signed with the merchant is liable for the ICMS related to such goods, when it operationalises the financial transaction and monitoring of the orders, and the mandatory invoice is not issued by the seller.

Beyond the unconstitutionality due to invasion of the jurisdiction reserved to a federal supplementary law, the state law might lead to an increase in disputes between the state and its municipalities for the collection of taxes. This is because the municipalities understand that some digital goods and services (such as software and streaming services) are subject to the municipal tax on services (ISS). Thus, depending on the stance adopted, it is a tax-triggering event with digital goods which may be subject to ICMS taxation by the state and ISS by the municipality. There has also been a rise of compliance costs with ancillary tax obligations. 

It should be noted that Law No. 8795/20 will only produce effects after the executive branch issues a decree with further regulation, which has not yet happened.

Nevertheless, taxpayers already foresee disputes arising from the changes brought to some aspects of the ICMS collection. This is because ICMS Agreement 106/17 is already being challenged in the Brazilian Federal Supreme Court, by the means of Unconstitutionality Declaratory Action (ADI) 5958, as well as the State of São Paulo laws on the matter, by means of ADI 5576.


Gabriel Caldiron Rezende
T: +55 11 3819 4855

Rogério Gaspari Coelho 
T: +55 11 3819 4855


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