Importation in Brazil - Modalities and Characteristics

The objective of this paper is to show how (II), the importer has the possibility to take

import works in Brazil: the different sorts of pro- credit of those taxes and to offset them

cesses behind import transactions into the against the taxes due in the transactions to

country and their main features. follow.

B. Import via trading companies

b.1 Import by order and for account of a According to Brazilian Law there are the third partyfollowing types of import:

In this modality of import the so called ? Direct import;

trading companies import the goods on ? Import via trading companies:

behalf and with funds of a second - as service provider: import by order and for company (purchaser/importer). It account of a third party; means that the trading company

- as importer: import for own account and provides the purchaser / importer

liability by order of a third party. merely with external trading services.

A. Direct import The trading company's service is

regulated by a contract registered with In this case the importer directly brings into the Brazilian Federal Revenue. In this the country goods with the purpose of case the service provider acts simply as reselling them. In such case the importer contractor of the purchaser/importer undertakes the complete risk with its own without acquiring the ownership of the resources. assets and without undertaking the risk.

The foreign exporter transfers the This modality of import is normally used by

ownership of the goods directly to the the industry to the import of inputs to its

purchaser. In this form of importation production or by the trader/retailer with or

the trading company shall be jointly and without trademarks or licenses.

severally liable with the purchaser /

importer for the payment of all the In such case the importer himself shall pay all associated taxes.the taxes relating to imports – Import Tax (II),

Excise-Tax (IPI), Social Contribution on As consequence, two different invoices

Imports (PIS/COFINS-Importation) and shall be prepared: one related to the sale

State-VAT (ICMS). Except for the Import Tax

I. MODALITIES OF IMPORTATION IN BRAZIL

Importation in Brazil: modalities and characteristics

AP INTERNATIONAL NEWSLETTER

TAX

Year 2 | No. 2 | May 2010

of the imported goods to the

purchaser/importer and the other one

related to the rendering of services by

the

In such modality all the usual taxes with

pre-tax credit are collected. If the IPI,

ICMS and PIS/COFINS-Gross Revenue

t r ad ing company to the on the value of goods are resold to the

purchaser/importer. customer-orderer, the costs of import

and the trading company's profit margin In this kind of importation all the taxes should be taken into account.due as per “direct import” shall be

col lected ( I I , IP I , P IS/COFINS- Both the trading company and the

Importation and ICMS). Only regarding customer-orderer shall be registered

the price of the service, which is with the RADAR (Register and

rendered by the trading company to the Supervision on Foreign Trade) in order to

purchaser/importer, the Tax on Services be able to use the SISCOMEX

(ISS) and the Social Contribution on the (Integrated System on Foreign Trade)

Gross Revenue (PIS/COFINS-Gross (see item II below). The advantage of this

Revenue) shall be collected separately. modality of import by trading company

consists in the fact that the customer-b.2 Import for own account and liability by orderer does not need the ordinary order of a third party register with the RADAR (“ordinary

RADAR” ) , t he s imp l i f i ed one In this modality of importation the

(“simplified RADAR”) being sufficient. trading company imports the goods for

The “simplified register” procedure with own account and liability. The goods are

RADAR is relatively fast (it takes thereafter resold to the customer-

approximately 10 days, see item II orderer.

below) and is not contingent upon any

evidence of greater corporate equity. On According to what is defined by law, the the other hand, the trading company trading company acts on its own shall demonstrate a corporate equity account and with its own resources, which is compatible with the volume without any kind of prepayment from and the quality of the aimed transaction.the customer-orderer. Therefore the

trading company undertakes, as Under Act no. 11.281/06, the transfer

importer, the business risk and does not pricing rules refer in this case to the

hold the position of “service provider”.importer and to the customer-orderer

(Article 14). In accordance with the same The ownership on the imported goods Act, the customer-orderer is jointly and are at first transferred to the trading severally liable with the trading company by the foreign exporter and company to all the taxes owed in then by the trading company to the connection with the import process.customer-orderer.

AP INTERNATIONAL NEWSLETTER Year 2 | No. 2 | May 2010

TAX | (continuation)Importation in Brazil: modalities and characteristics

implementation of the ICMS tax credits.Overview:

Apart from the knowledge about each modality of

import, it is also important to know in which

Brazilian harbor the shipment is carried out, since A. Forms of registration and authorization

States such as Espírito Santo offer to the

companies tax benefits regarding ICMS, when In order to use the SISCOMEX (Integrated the relevant harbors are used for importation. In System on Foreign Trade) and to be able to case the import is carried out under the modality act in Brazilian foreign trade, the individuals “Import for own account and liability by order and the legal entities shall be registered with of a third party”, taking into account the costs in the so called RADAR (Register and addition to logistic, a saving net amounting Supervision of Foreign Trade).between 1.5% and 3% of the FOB-Price (see

above item I, b2) is possible by virtue of this sort of There are basically 4 forms of RADAR –

tax benefit. The reduction in the state Espírito ordinary, simplified, special and restricted

Santo is accepted by the state of São Paulo RADAR – which vary according to the sort of

making use of the protocol ICMS no. 23, of July transaction. In most cases it is important to

3rd, 2009. But given the “fiscal war” situation notice especially the ordinary and the

between the Brazilian States, this protocol is simplified forms.

particularly important as legal basis for

II. CONDITIONS TO THE IMPLEMENTATION OF

FOREIGN TRADE TRANSACTIONS



Features

Financial resources

Business risk

Ownership of the goods

Exchange contract

Register/SISCOMEX

Contract with trading co.

Customer data

Pre-Payment to trading co.

Payment for services - trading co.

Profit margin - trading co.

Modality of transaction

Direct import

importer

importer

importer

importer

importer¹

no

not applicable

not applicable

not applicable

not applicable

commercial

Import by order and for account of a third party

importer

importer

importer

importer/trading co.

importer¹/trading co.¹

yes

yes

yes

yes

no

service

Import for own account and liability by order of a third party

trading co.

trading co.

trading co.

trading co.

orderer²/trading co.¹

yes

yes

no

no

yes

commercial

1 – ordinary RADAR is needed2 – simplified RADAR is enough

a.1 Ordinary RADAR – it serves the legal RADAR the company (RADAR-

entity that acts on a regular basis in the legitimated) is not subject to any

foreign trade. According to this form the previous inspection as regards its

applicant is subject to an economical economical and entrepreneurial ability

and entrepreneurial auditing by the to pay.

Federal Revenue. The company can choose the most appropriated

Once it permits all sorts of possible RADAR modality. It is bound to and responsible for

transactions, this is the most complete such choice. If the taxpayer chooses the simplified

form of RADAR. If determined that the form for transactions of minor value, it is not

volume of transactions is not reasonable committed to submit innumerable documents

in comparison to the economical and and its register is granted approximately in 10

entrepreneurial performance of the days.

RADAR-user, it can be subject to a special In the ordinary RADAR the imports volume is audit by the Federal Revenue (IN SRF estimated and it can be exceeded, subject to the 206/02 and 228/02).condition that the imports volume be compatible

In case the Federal Revenue considers to the company's economical and entrepreneurial

that the documents and the given capacity (IN SRF 206/02 and IN SRF 228/02).

information are sufficient, the register is In the simplified RADAR there are maximum granted within approximately 60 days.amounts for the transactions. The SISCOMEX

a.2 Simplified RADAR – it serves the legal prohibits the register of the customs clearance

entity, which, for instance: certificate if these limits are exceeded.

i. acts exclusively as customer;If the company chooses to handle higher

ii. carries out imports of goods to fixed volumes, it shall apply itself for the ordinary assets; RADAR.

iii. carries out foreign trade transactions B. Criteria for the application of the RADARof minor value.

The registration with RADAR in order to enable A “foreign trade transaction of minor the company to use the SISCOMEX must be value” means the one that does not requested by the interested party, the forms of exceed the following amounts:which shall be signed by the management of

i. USD 300,000 of export FOB (“Free on the applicant or by its representatives.

Board”); andThe company shall be subject to a tax

ii. USD 150,000 of import CIF (“Cost, inspection based on the company's

Insurance and Freight”).declarations and other documents made

available to the Federal Revenue (Art. 2 At the registration with the simplified



Regulation COANA no. 3/06) to: criterion, it is safer to carry out the import with a

trading company on its own account.i. check the conformity of the issued

information with the Federal Revenue's data

base and with the application data;

ii. determine the company's operational

capacity: disposal of labor, materials, logistic,

installations, immovable assets, technology

among others;

iii. assess the company's financial capacity to

the realization of the aimed international

transactions (every 6 months);

iv. determine the shareholders' entrepreneurial

and economical capacity.

The analysis of the application for the RADAR at

the Federal Revenue is subjective. It is basically

checked if the company is new or old (relating

to its creation); if the equity is paid in; if cash

flow is available; what the shareholders'

economic position is; what the company's

operational structure is and, possibly, if the

company is well structured.

According to our experience, the company

should present at least a corporate equity which

expresses twice the amounts expected for 6

months of import activity. The paid-in capital is

one of the most investigated and standards

applied by the tax authorities for determination of

the financial capacity.

If the corporate equity does not express such



Author: Paulo C. T. Duarte Filho, LL.M (Munich)

For further information, please write to [email protected]

We thank the law student Marcelo Shima Luize for the assistance in the English version of this paper.

The former issues of the AP International Newsletter are available on the internet at: www.araujopolicastro.com.br

The AP International Newsletter is a publication of Araújo e Policastro Advogados. All rights reserved. This publication offers general information and should not be taken or used as legal advice for specific situations which depend on the evaluat ion of precise factual circumstances.

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Importation in Brazil - Modalities and Characteristics