No Day at the Beach

Brazil's tax code poses one of the most significant challenges to U.S. CFOs looking to do business there. "Everything in Brazil will tend to have a different applicable tax rate, depending on the type of service or product," says Larry Harding, president of High Street Partners, an international business-services firm that advises companies on overseas expansion. He outlines two hypothetical examples for companies trying to sell into the market from outside Brazil:

Product invoice scenario:
A U.S. company invoices a Brazilian company for a computer-hardware purchase. Once the buyer in Brazil receives the product and related invoice, the buyer will have to pay taxes on the item as follows:

• Importation tax: 16%
• Industrialization tax: 15%
• Social-integration program contribution tax: 1.7%
• Social Security financing tax: 7.6%
• Tax on circulation of goods and services: 18%

Service invoice scenario:
A U.S. company invoices a Brazilian company for a consulting service. Once the customer in Brazil receives the service and related invoice, the customer will have to pay taxes on the service as follows:

• Withholding tax: 15%
• São Paulo services tax: 5%
• Cross-border royalties and services tax: 10%
• Social-integration program contribution tax: 1.7%

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