New ICMS compliance deadline in Brazil New ICMS compliance deadline in Brazil

New ICMS compliance deadline in Brazil
21 Dec 2017

From 1 January 2016 this year, companies operating from Brazil need to comply with changes to Constitutional Amendment EC 87/2015 governing tax rates on interstate transactions where the final consumer is not a Brazilian taxpayer.

In September 2015, the National Finance Policy Council (Confaz) approved the change introduced by Constitutional Amendment EC 87/2015, which alters the way that ICMS is shared between the states in the case of interstate transactions and deliveries of goods and services to a non-taxpayer final consumer.

Among the sectors affected by this measure are companies that sell goods over the internet or by phone.

According to CONFAZ Convention 93/2015, as from the first of January 2016 the difference between internal and interstate ICMS rates on products and services sold in interstate transactions to nontaxpayer final consumers will be divided between the states of origin and destination. This means that companies have less than two months to adjust to the new rules.

Most states have a fixed internal ICMS rate of 17 per cent. The exceptions are São Paulo, Paraná and Minas Gerais, with 18 per cent, and Rio de Janeiro with 19 per cent. The interstate rates are 7 per cent and 12 per cent, depending on the states of origin and destination of the goods.

Under the new legislation, the rate difference will be shared as follows:


• 2016: 40 per cent for the destination state and 60 per cent for the state of origin
• 2017: 60 per cent for the destination state and 40 per cent for the state of origin
• 2018: 80 per cent for the destination state and 20 per cent for the state of origin
• With effect from 2019: 100 per cent for the destination state.

To adapt to this, companies must change the layout of their tax receipts and obey the tax procedures described in CONFAZ ICMS Convention 93/2015.

If they fail to do so they may even be obliged to suspend sales to final consumers in other states.

Complexities

On top of the tax procedures contained in CONFAZ ICMS Convention 93/2015, companies may have other operating difficulties in paying ICMS on this type of transaction, such as being required to pay the tax to the destination state, using form GNRE (the national state tax payment form) for each sales transaction.

Bearing in mind the dynamics and logistics of sales made throughout Brazil by e-commerce companies, the new procedure will require an enormous effort if they are to comply with the tax requirements.

Under CONFAZ Convention 93/2015, a taxpayer located in the state of origin may be required or allowed to be listed on the ICMS Taxpayers Register in the destination state (depending on the provisions of its tax legislation).

The opening of state registration in the 26 states of Brazil plus the federal district, on the one hand, will make it easier for companies to pay the tax to the destination state, since it will allow them to make a monthly payment in one lump sum.

On the other hand, this requirement may nullify the benefits granted to micro and small companies (which use the ‘simples’ tax regime), or make them ineffectual in practice, since it is a major operational burden for them to register with a number of states and manage these registrations when selling their products throughout the country.

In spite of the difficulties, it is probable that most companies will succeed in adapting to the new legislation by expanding their finance departments, which will add costs to their operations.

However, third party service providers could provide an alternative by offering specialised tax services to meet these requirements more efficiently and cheaply, so that the companies affected can devote their time to what they do best.

“Bearing in mind the dynamics and logistics of sales made
throughout Brazil by e-commerce companies, the new
procedure will require an enormous effort if they are to
comply with the tax requirements.”

 

TMF Group is a leading provider of high-value business services to clients operating and investing globally and with more than 5,500 employees working in over 120 offices worldwide.

From 1 January 2016 this year, companies operating from Brazil need to comply with changes to Constitutional Amendment EC 87/2015 governing tax rates on interstate transactions where the final consumer is not a Brazilian taxpayer.

In September 2015, the National Finance Policy Council (Confaz) approved the change introduced by Constitutional Amendment EC 87/2015, which alters the way that ICMS is shared between the states in the case of interstate transactions and deliveries of goods and services to a non-taxpayer final consumer.

Among the sectors affected by this measure are companies that sell goods over the internet or by phone.

According to CONFAZ Convention 93/2015, as from the first of January 2016 the difference between internal and interstate ICMS rates on products and services sold in interstate transactions to nontaxpayer final consumers will be divided between the states of origin and destination. This means that companies have less than two months to adjust to the new rules.

Most states have a fixed internal ICMS rate of 17 per cent. The exceptions are São Paulo, Paraná and Minas Gerais, with 18 per cent, and Rio de Janeiro with 19 per cent. The interstate rates are 7 per cent and 12 per cent, depending on the states of origin and destination of the goods.

Under the new legislation, the rate difference will be shared as follows:


• 2016: 40 per cent for the destination state and 60 per cent for the state of origin
• 2017: 60 per cent for the destination state and 40 per cent for the state of origin
• 2018: 80 per cent for the destination state and 20 per cent for the state of origin
• With effect from 2019: 100 per cent for the destination state.

To adapt to this, companies must change the layout of their tax receipts and obey the tax procedures described in CONFAZ ICMS Convention 93/2015.

If they fail to do so they may even be obliged to suspend sales to final consumers in other states.

Complexities

On top of the tax procedures contained in CONFAZ ICMS Convention 93/2015, companies may have other operating difficulties in paying ICMS on this type of transaction, such as being required to pay the tax to the destination state, using form GNRE (the national state tax payment form) for each sales transaction.

Bearing in mind the dynamics and logistics of sales made throughout Brazil by e-commerce companies, the new procedure will require an enormous effort if they are to comply with the tax requirements.

Under CONFAZ Convention 93/2015, a taxpayer located in the state of origin may be required or allowed to be listed on the ICMS Taxpayers Register in the destination state (depending on the provisions of its tax legislation).

The opening of state registration in the 26 states of Brazil plus the federal district, on the one hand, will make it easier for companies to pay the tax to the destination state, since it will allow them to make a monthly payment in one lump sum.

On the other hand, this requirement may nullify the benefits granted to micro and small companies (which use the ‘simples’ tax regime), or make them ineffectual in practice, since it is a major operational burden for them to register with a number of states and manage these registrations when selling their products throughout the country.

In spite of the difficulties, it is probable that most companies will succeed in adapting to the new legislation by expanding their finance departments, which will add costs to their operations.

However, third party service providers could provide an alternative by offering specialised tax services to meet these requirements more efficiently and cheaply, so that the companies affected can devote their time to what they do best.

“Bearing in mind the dynamics and logistics of sales made
throughout Brazil by e-commerce companies, the new
procedure will require an enormous effort if they are to
comply with the tax requirements.”

 

TMF Group is a leading provider of high-value business services to clients operating and investing globally and with more than 5,500 employees working in over 120 offices worldwide.