Digital Taxation moving ahead in Brazil

By Sergio Botinha

The state of São Paolo will initiate next 1st of april the taxation of digital goods. It will be the first Brazilian state to do so and it will most likely start the era of e-goods taxation all over Brazil. Apps that sell almost anything at their platform will now have to pay taxes.

The tax will be the ICMS, which is the Sales Tax (VAT) denomination here.

For long, this was expected and despite the debates over the internet being a tax-free environment, the inevitable has come.

Companies selling goods over the internet should be prepared to deal with this taxation. The sales tax is due initially only in the state of Sao Paolo but since sales tax in Brazil (ICMS) is a state tax, and since Brazil has 27 states, each one will have its own legislation, rates and procedures for collection.

The tax will be due upon transaction of digital goods, meaning what is sold over data transfer. That shall apply over app purchases, in-app sales, downloads, etc. The owner of the site or app is the responsible for payment and procedures are expected to be simple.

Our offices are prepared to assist e-companies all over the world with information and preparation for the coming new taxation scheme, as well as updating new taxation schemes in other states as well.

For certain operations, it might be possible to annul or cancel the charging of the tax, since there are some products that would entail another tax instead of the ICMS or even not fall under any tax category. There are cases where two taxes are being charged (ICMS AND ISS – SERVICE TAX).

When the product being sold is a service rather than an e-good or asset, ISS is the tax due, a tax normally cheaper than the ICMS. The determination of whether a sale is of a service or good is setting hurdles in Brazilian tax law for a long time already and the correct approach to the issue can generate great savings in taxes.

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