For entrepreneurs in Brazil and abroad, ICMS is one of the main taxes to be managed. Whether you are a small entrepreneur or a large corporation, understanding how the ICMS tax works is fundamental to optimizing tax management. In fact, Brazil is a very interesting country when it comes to investments, yet it is quite complex regarding tax management. Compared to the US or Europe, for instance, there is a complex set of rules to be followed. Therefore, it’s a very good reason to rely on specialized consultancies.

In this article you will find specific information explaining about the different rates in different states of the country, and how to collect them. That’s why we’re going to cover the most important aspects of ICMS, with practical tips so that you can calculate the tax correctly andfulfill your tax obligations.

What is the ICMS tax?

ICMS stands for Tax on the Circulation of Goods and the Provision of Interstate and Intermunicipal Transportation and Communication Services: a VAT tax levied by the Brazilian states on the circulation of goods and services in general. The ICMS tax iss levied on the most varied taxable products – from food to household appliances – that circulate between cities and also on interstate/intermunicipal transportation and communication services. 

Due to its scope, it is one of the main sources of revenue for the states and is included in the value of most products consumed in the country. While consumers pay the tax indirectly, already embedded in the value of products and services, business owners need to be aware of ICMS rates and settle accounts with the Revenue Department in all transactions. It is up to the states and the Federal District to define the tax rates and rules for taxpayers, considering factors such as the origin and destination of the product, among other criteria.

In Brazil, there is a quite different organization: ICMS agreements are regulated by the National Finance Policy Council (CONFAZ); headed by the Secretaries of Finance or Taxation of each state and the Minister of State for Finance – its mission is to promote tax equalization between the states of the Federation.

Which transactions is ICMS levied on in Brazil?

According to Complementary Law 87 of 1996, ICMS in Brazil is levied on the following operations:

Operations relating to the acquisition of goods in general, including the supply of food and drink in bars, restaurants and similar establishments;

• Provision of interstate and intercity transportation services, by any means, for people, goods, merchandise or valuables;
• Provision of communication services (emission, generation, reception, transmission, etc.);
• Supply of goods with the provision of services;
• Imports of goods from abroad, regardless of their purpose;
• Services rendered abroad or which began abroad;
• Entry into the state of destination of petroleum, including lubricants and liquid and gaseous fuels derived therefrom, and electricity, when not intended for commercialization or industrialization.

The fact that the goods are the object of a sale or donation, or have a charitable or cultural purpose, does not alter the ICMS tax. 

Which operations are exempt from ICMS?

The law regulating the ICMS also defines the transactions exempt from the tax.

• Transactions involving books, newspapers, periodicals and printing paper;
• Operations and services that send services or goods abroad, including primary products and semi-manufactured industrialized products;
• Interstate transactions relating to electricity and oil, including lubricants and liquid and gaseous fuels derived therefrom, when intended for industrialization or commercialization;
• Operations with gold, when defined by law as a financial asset or foreign exchange instrument;
• Leasing operations;
• Transactions relating to goods used in the provision of services of any nature defined by complementary law as subject to service tax, under the jurisdiction of the municipalities;
• Transfer of ownership of industrial, commercial or other establishments;
• Transactions arising from fiduciary alienation in guarantee;
• Transfer of movable property salvaged from accidents to insurance companies;
• Fruit and vegetable operations;
• Operations involving agricultural inputs (including seedlings and seeds);
• Acquisition of vehicles adapted for people with physical disabilities.

Read also: Simplifying accounting in Brazil

How is ICMS in Brazil charged?

ICMS, like any other tax, is levied on the basis of a taxable event – which is nothing more than the event that motivates the application of the tax. In this case, the taxable event is the change of ownership of the goods, and not the simple registration of ownership on the invoice.

Let’s make it clear: every time goods are transported from one place to another, their ownership is recorded on the invoice. But in order to be charged ICMS, the product must be passed on to another buyer. In this way, the tax is lawfully levied and the amount can be collected by the state. Remember that, with the exception of electricity and petroleum products, the tax will always be levied in the state where the goods or services originate.

Therefore, ICMS varies according to each state, and any information on the tax must take into account the location of the operation.

How important is ICMS?

The ICMS is the most important tax in the budgets of states and municipalities. What is collected from the ICMS on fuel alone can represent around 30% of the cash flow of the states, according to a research made by TV Senado, a state TV channel financed by the government. In addition, from January to October 2023, the tax revenue of the 26 states and the Federal District amounted to R$ 553.45 billion. 

Given the substantial contribution of ICMS to tax revenue, it is evident that this tax plays an important role in public administration: by law, 75% of the collected funds are allocated to the state government, while 25% are distributed to the municipalities.

How can ICMS in Brazil be calculated?

We’ll offer a simple analysis of how to calculate it, from a consumer viewpoint. It’s important to mention that businesses should count on specialized assistance in order to perform this calculation.

To calculate ICMS, simply multiply the value of the product or service by the corresponding rate:

Price of goods x Rate = ICMS value of goods
For instance, if you have a business in Sao Paulo and sell a 1.000 BRL product, the ICMS rate will be 18%, leading to the following calculation:

BRL 1.000 x 18% = BRL 180

Therefore, the amount of ICMS due would be BRL180 when the product is sold. Each state charges a different rate, and the entrepreneur must check the current table to calculate the tax. 

In addition, the amount also changes depending on the origin and destination of the goods, as the tax is different for internal movements (within states) and interstate movements (between states). 

Read also: FAQ about accounting and tax for international companies in Brazil

How to identify Brazil ICMS tax rates?

To determine Brazil’s ICMS tax rates applicable to your company, it is necessary to evaluate the nature of your business operations, the tax rates charged by the involved states, and your company’s tax regime. This guide will outline the procedures for calculating the amount owed in various scenarios.

Tax rate for internal transactions

If the product or service is sold within the state, it is simpler to determine the ICMS liability, as the tax rates are standardized.

Please refer to the following rates for the year 2024:

Amazonas – 20%
Amapa – 18%
Acre – 19%
Alagoas – 19%
Bahia – 20.5%
Ceara – 20%
Federal District – 20%
Rio Grande do Norte – 18%
Espirito Santo – 17%
Goias – 19%
Paraiba – 20%
Parana – 19.5%
Pernambuco – 20.5%
Piaui – 21%
Para – 19%
Rio de Janeiro – 22%
Rio Grande do Sul – 17%
Sergipe – 19%
Tocantins – 20%
Rondonia – 19,5%
Roraima – 20%
Santa Catarina – 17%
Sao Paulo – 18%
Maranhao – 22%
Mato Grosso – 17%
Mato Grosso do Sul – 17%
Minas Gerais – 18%

Tax rate for interstate transactions

For interstate transactions, the ICMS calculation becomes more complex, requiring the determination of the difference between the internal and interstate ICMS rates, known as the Differential Rate or DIFAL.

Let’s take a deeper look into this calculation process:

ICMS table 2024

The ICMS table consolidates the fixed rates for internal and interstate transactions across all Brazilian states. However, there is an important detail to consider: the table varies according to the tax regime under which the company operates.

For instance, the following example introduces data for companies under the Presumed Profit and Real Profit tax regimes. These companies are required to calculate ICMS on their sales separately.

As mentioned earlier, products are taxed internally at the fixed state rates. Nevertheless, for interstate transactions, it is necessary to calculate the Differential Rate (DIFAL). This mechanism was introduced to safeguard the competitiveness of the buyer’s state, preventing purchases solely from states with lower tax rates and protecting the local market.

In addition, the DIFAL Table lists all Brazilian states and their corresponding tax rates. It provides both internal and interstate rates, enabling the calculation of the differential rate for the movement of goods between different states

Please refer to the table above for a detailed breakdown of rates and an illustrative example of how to apply them below:

The rows represent the origin of the goods, while the columns point to the destination.
The start point will be to identify the tax rate for the state of AM.
To calculate the data needed, let’s locate the rate corresponding to the state of origin and destination in the table, which is 20%.
To check the interstate rate, compare the AM origin with another destination. If the destination is, for example, BA, then the rate will be 12%.

How to pay the ICMS in Brazil?

To comply with ICMS obligations, your company must be registered with the State Department of Finance (SEFAZ) in your region. Once registered, you will receive a State Registration (IE) confirming your tax obligation and authorizing you to issue electronic invoices. To identify mandatory documents and check the ICMS rates in your state, consult your accountant for guidance on local legislation.

ICMS payments are made using the state’s specific form for internal transactions and the National State Collection Form (GNRE) for interstate transactions. 

It is important to note that failure to pay ICMS can result in cumulative fines.

Read also: FAQ about accounting and tax for international companies in Brazil 

Consequences of non-payment of ICMS in Brazil

Failure to pay ICMS will result in your company being in default with the tax authorities. To rectify this situation and comply with tax regulations, your company needs to regularize the tax position by paying the overdue amount with interest calculated based on specific rates for the applicable period.

It is imperative to pay ICMS promptly to maintain tax compliance, avoid tax-related issues, and mitigate significant financial losses due to interest accrual.

How to calculate and pay ICMS properly? 

Due to the complexity of calculations and the accordance to the tax regimes, it’s advised to count on specialized consultancies to help your company comply with regulations, avoid problems and optimize your work. Europartner is the best expert consultancy for your business. After over 15 years in the field helping businesses to succeed in Brazil, it’s time for your company to do the same.

Their experts are waiting for your contact. Get in touch and evaluate the opportunity they have to help your business.