The ISS in Brazil, or Service Tax, applies to various sectors of the market, encompassing both well-established companies and self-employed individuals. Therefore, to run a successful and continuously growing business, it is essential to comply with tax obligations.

If you plan to invest in Brazil or start a business, this article will clarify the important points about this specific tax – which impacts service providers. We will also explore the essential aspects of ISS tax, its significance and how it works, who has to pay it, and how it is calculated.

What is ISS in Brazil?

ISS in Brazil, or Service Tax, is a municipal tax levied on the provision of services in Brazil. This tax is applicable to a wide range of service activities listed in the Complementary Law No. 116/2003. 

Each municipality in Brazil is responsible for establishing its own ISS rates and regulations, leading to variations across different regions.

The rate determined by the Service Tax varies according to the city, but it generally ranges between 2% and 5% (the minimum and maximum rates as defined by law) on the value of the service provided. The company needs to declare its headquarter in this city and have an activity there to be registered as an ISS tax-payer in this place. 

To find out the tax rate in your municipality, as well as in the municipality where the service will be performed, you have to consult the city’s local government.

How does ISS in Brazil work?

ISS functions as a municipal tax levied on companies that provide services by the municipalities where the service is performed. It is collected by all cities in Brazil, as well as by the Federal District in Brasilia.

The rate is determined by the city in which the service provider has registered their operation.

In some cases, the Service Tax may be withheld at the source, meaning that the service recipient is responsible for collecting and remitting the tax.

However, this depends on the municipality. Therefore, it is essential to stay informed about your city’s legislation on the matter.

There is a simple way to calculate ISS in Brazil (which we will explain in detail later), but it is also possible to find out the amount for each electronic service invoice (NFS-e) issued through the electronic invoice issuing program.

When filling out the fiscal document, it is common for the program to automatically record the rate of your municipality and apply it to the NFS-e, making it easier to know the correct amounts.

The payment of the Service Tax varies, but except for exempt cases or for companies with tax withheld at the source, it is the service provider who pays the tax.

Who is subject to ISS in Brazil?

ISS tax is applicable to individuals and legal entities engaged in providing services in Brazil. This includes professionals such as doctors, lawyers, and consultants, as well as businesses in sectors like technology, construction, and entertainment, for example. 

Additionally, except in cases where the city requires the company to withhold the tax (in which case the service recipient pays), the service provider must pay the Service Tax to the municipality where they are registered.

One of the major questions for those wanting to learn about the topic is: how does ISS payment vary from one company to another? Does it differ according to the tax regime?

We will explain everything below:

Individual Microentrepreneur (MEI)

MEIs, or Individual Microentrepreneurs, are part of a select group within the Simples Nacional tax regime, which simplifies the payment of taxes into a single slip.

In the case of MEIs, due to their gross annual revenue being limited to BRL 81,000 and only allowing specific activities, the amount is reduced and fixed.

That is, in a single payment slip (known as DAS or Documento de Arrecadação do Simples Nacional), the MEI pays ISS and INSS (if providing services) or ICMS and INSS (if selling products).

Companies in the Simples Nacional Regime

Companies that are part of the Simples Nacional, such as microenterprises (ME) or Small Enterprises (EPP), also have an easier time paying ISS in Brazil.

The tax rate is based on the total monthly revenue.

For example, if an enterprise earns BRL 10,000 in a month and the ISS in Brazil rate on the Simples table is 5%, the enterprise will pay BRL 500 in Service Tax.

The Simples Nacional is a tax regime created to simplify tax control for smaller companies.

In this case, companies with annual revenues of up to BRL 4.8 million can be included in the Simples Nacional.

Other Types of Companies

There are also service providers that do not fall under MEI or Simples Nacional. They usually fall under the regimes of Actual Profit or Presumed Profit. These tax regimes are mandatory if one company partner is a foreigner.

In both cases, ISS in Brazil is paid for each service provided, with a rate that follows the table of the municipality where the service is performed.

A note: if this is your case, we recommend always keeping an eye on the municipal legislation where the activity will be performed, not only to know the correct rate but also how the municipality views the nature of your service.

Discrepancies can exist from city to city, so it’s important to stay attentive.

Who is exempt from paying ISS in Brazil?

Companies that export services abroad (developed in Brazil or other countries) but do not bring any results to Brazil are exempt from ISS. Additionally, some municipalities offer tax incentives or reduced rates for specific activities to attract businesses and stimulate economic growth.

There may be other cases of ISS exemption, but as mentioned, it depends on the city.

Since the municipality is responsible for collecting the Service Tax from companies, it can exempt any activity it deems pertinent. It will vary significantly from case to case.

Therefore, remember to stay informed about the municipality’s legislation. 

Read more: Taxes in Brazil for foreigners: what are the incentives?

How is ISS calculated?

The calculation of ISS in Brazil involves several factors, including the nature of the service provided, the municipality in which the service is rendered, and the applicable tax rate. Here are the key points to consider:

1. Service Classification: Services are categorized according to the list provided in Complementary Law No. 116/2003. Each category has a specific tax rate associated with it.
2. Tax Rates: ISS rates can vary significantly between municipalities, typically ranging from 2% to 5%. Some cities may have different rates for different types of services.
3. Withholding ISS in Brazil : In certain cases, the responsibility for collecting and remitting ISS in Brazil lies with the service recipient rather than the provider. This is common in transactions involving public administration or large corporations.
4. ISS Calculation Example: If a consulting firm provides services worth BRL 10,000 in a municipality with an ISS rate of 3%, the ISS in Brazil owed would be BRL 300 (10,000 x 0.03).

Compliance and Reporting

Service providers must adhere to local ISS regulations, which include registering with the municipal tax authority, issuing proper invoices, and maintaining accurate records of transactions. Regular reporting and timely payment of ISS in Brazil are important to avoid fines and legal issues.

Read more: Investing in Brazil in 2024: opportunities and challenges

ISS: Frequently Asked Questions

Before finishing your reading, how about clearing up some of the main doubts about the topic? We have compiled common questions from clients and blog readers to answer them objectively.

Want to learn more? Just keep reading!

What is ISS Withholding?

ISS withholding is different from tax collection.

It happens only in specific cases, such as those related to the changes in Complementary Law No. 175, where the municipality of the service recipient (contracting party) withholds the tax.

Who Pays ISS: The Service Recipient or the Service Provider?

The collection of ISS in Brazil depends on the municipal law, the type of service, and the market segment. In general, the tax is collected by the municipality of the service provider — meaning it is the company’s responsibility to collect it.

However, there are cases where the municipality of the recipient collects it, whether for services provided to legal entities or individuals.

How to Obtain a Negative ISS Certificate?

To issue a Negative Debt Certificate (CND) for municipal debts and taxes, the taxpayer needs to access the website of their City Hall. This certificate shows that the tax-payer has quitted his debts.

How can a Consultancy help your company?

Understanding the Brazilian tax system demands long hours of research and work.  Therefore, it’s advised to count on specialized consultancy to ensure your company will invest in Brazil following all the necessary procedures.

Europartner is the most seasoned and prepared consultancy to guide your business into success.

Understanding and complying with ISS regulations is essential for service providers operating in Brazil. By staying informed about the applicable rates, exemptions, and reporting requirements, businesses can ensure compliance and contribute to the local economy’s development.