Brazil is the second country that taxes companies the most. The information is the result of a survey that used data from the OECD (Organization for Economic Cooperation and Development). On average, the tax rate paid is 34%, which is 70% higher than the global average and only 1% lower than Malta, which ranks first.
Along with a high tax burden, companies must also pay a series of taxes at different levels: municipal, state, and federal. Moreover, these taxes are collected in two different ways: direct and indirect. The difference lies in the way the tax is collected.
Direct Tax
Direct tax is a tax where the person – natural or legal – is responsible both for the taxable event and for paying the tax to the authorities. This tax cannot be transferred to any other person or group.
Among the most common direct taxes is Income Tax (IR). In this case, the taxpayer is responsible for declaring and paying the tax. In addition to income tax, direct taxes also include, for example, Property Tax (IPTU) and Motor Vehicle Property Tax (IPVA).
Along with a high tax burden, companies must also pay a series of taxes at different levels: municipal, state, and federal. Moreover, these taxes are collected in two different ways: direct and indirect. The difference lies in the way the tax is collected.
Direct Tax
Direct tax is a tax where the person – natural or legal – is responsible both for the taxable event and for paying the tax to the authorities. This tax cannot be transferred to any other person or group.
Among the most common direct taxes is Income Tax (IR). In this case, the taxpayer is responsible for declaring and paying the tax. In addition to income tax, direct taxes also include, for example, Property Tax (IPTU) and Motor Vehicle Property Tax (IPVA).
Indirect Tax
Indirect taxes are paid by companies or individuals who are responsible for paying them, but they are passed on in the selling price of a product or service. So, it is someone else who actually pays them: the taxpayer.
Examples of well-known indirect taxes are, for example, the ICMS (Tax on Operations Related to the Circulation of Goods and Services on Interstate and Intercity Transport and Communication) and the IPI (Tax on Industrialized Products).
In practice, the legal taxpayer of the ICMS is the company, while the actual taxpayer is the consumer.
How do direct and indirect taxes affect businesses?
With so many taxes levied at different levels and with different incidences – on income, as in the case of direct tax, and on goods and services, as in the case of indirect tax – it is important for any business to master the different angles of the Brazilian tax system.
Taxation is a subject that is often considered difficult to master. However, there is no doubt that it plays a decisive role in the management of a company. Proposing the right tax choices, making the best use of government deductions and benefits, and managing and avoiding risks are services offered by Pryor Global.
Count on our BackOffice Outsourcing services! We have an expert team in fiscal and accounting rules and accessory obligations.
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