DOING BUSINESS IN BRAZIL GRUPO PLANUS

Transcription

1 DOING BUSINESS IN BRAZIL GRUPO PLANUS

2 DOING BUSINESS IN BRAZIL Dear Customer, We have elaborated this brief document in order to provide some insight on the necessary steps to set up a company in Brazil and address the main concerns regarding the necessary permits and taxes. It is also enclosed a chronological chart organizing a step by step guide for company formation. We have tried, in very few pages, to separate the necessary steps by each area, and to provide necessary explanations. Nevertheless, please note that the complexity of the matter is much greater than the content of this document, and professional assistance is essential if you really have made the decision of opening a business in our country. We hope that this summarized information can prove of some value when evaluating your plans to set up a business in Brazil, and make ourselves entirely available for any needed clarifications. GRUPO PLANUS SOLUÇÕES EMPRESARIAIS Felipe Batista dos Reis Pestana felipe@grupoplanus.com.br

3 SUMMARY 1 INCORPORATION OF A COMPANY IN BRAZIL Requirements to be a partner Incorporation of the Brazilian company CENTRAL BANK Cademp Rde-Ied Rof VISA Investors Visa Technical Assistance / Technology Transfer contracts Management visa Employment contract Offshore workers SISCOMEX COMPANY FORMATION CHRONOLOGICAL CHART TAX Import taxes Direct taxes Export taxes Tax on profit EBT / Assumed Profit comparation (tax planning) Payroll taxes... 21

4 1)_INCORPORATION OF A COMPANY IN BRAZIL Differently from several countries, opening a branch directly in Brazil is not a good idea. Brazilian corporate law severely restricts the operation of companies through direct branches, requiring authorizations from Central Executive Power, which leads to the incorporation of a branch taking up to one year without any legal, tax, or other advantages. Therefore, the most standard company in Brazil is the limited liability ( sociedade limitada ). This company type combines liability limitation with less formalities in the daily activities of the company, therefore being a good choice in 99% of the cases. The other option would be to create a public limited company. There are no different tax treatments, but this kind of company has a more formal relation between partners, with corporate books for minutes of assemblies and meetings, control of the shares, and other related matters. Both types of companies may be 100% owned by non residents corporation or individuals; but must have a resident (Brazilian or foreigner) local manager, with broad powers (tough it is possible to put requirements for partners consent for some acts). It is important to note that registering your acts of incorporation on the Board of Trade is just the beginning of the creation of the company in Brazil several other permits may be required in order for the full functioning of the company, and it is important to be aware of these procedures and plan your operation ahead. Please see, following, the main points to be observed when creating a limited liability company in Brazil 1 : 1.1) Requirements to be a partner Legal entities have to provide (a) document containing proof of existence, issued by the Companies house of its Country, authenticated by a notary and registered in the local Brazilian Consulate; and (b) Power of Attorney electing an individual (foreign or not) with fixed address in Brazil, with broad representation powers, but most specifically to receive legal notice for lawsuits and other procedures against the grantor. To foreign individuals, please regard only item (b) above, plus one copy of identity document issued in the Country of origin. 1 Please note that this document is a quick reference guide for creating a company in Brazil and does not, in any way, intend to exhaust the subject. If you really intent to create a company, we strongly recommend you to seek professional assistance.

5 It is important that the document that stands for proof of existence demonstrates the individuals with powers to represent the legal entity it must be possible to prove the signer of the PoA had the powers to this act. For the above mentioned documents to produce effects within Brazilian law, additional procedures are required: Sworn Translation - the documents have to be translated by a sworn professional, registered in the Board of Trade of the jurisdiction the company is to be incorporated in; Registration in a Titles and Documents Notary - the original documents and its translations have to be registered in this specific notary of the jurisdiction the company is to be incorporated in. Registration in the Board of Trade - finally, the documents and its translations have to be registered in the Board of Trade. 1.2) Incorporation of the Brazilian company After all documents have fulfilled the above requirements, the company can be effectively incorporated. In general, this will happen according to the following steps Elaboration of statutes / acts of incorporation and registration in the Board of Trade - as in most countries, the first step for incorporating a local company is registering the signed acts of incorporation in the Board of Trade; Issuing a CNPJ (Federal Taxpayers number) Federal Revenue 2 - the CNPJ is the main tax registration for a company in Brazil. This is required to all other registrations. With a valid CNPJ you are able to open and operate a bank account; Registration of the company in Social Security and Caixa Economica Federal - even if you don t have anyone in your payroll, Brazilian regulations still require you to provide information to the social security and Caixa Economica Federal (the Federal bank that manages the employee severance fund). Not complying with these reports will put the company in an irregular situation for the Federal Administration, and may bring problems, especially when providing letter of good standing with the authorities; 2 Before requesting a CNPJ for the local company, it is required for all partners to have a CNPJ or, in case of inviduals, CPF, in the Federal Revenue. When it comes to nonresident partners, this is a procedure made through the Central Bank please see the next section for further information.

6 Issuing a functioning permit and Municipal taxpayer s number in the city Administration - any company must register themselves within the City Administration. The city is responsible for the administration of service tax (service VAT). Even if your company is not a service provider, the city permits are still mandatory, since the City Administration supervises the occupation of urban area, regarding restriction of activities in certain areas. State Taxpayers number - the State Revenue is responsible for managing the ICMS tax. This is a VAT charged over sales of goods, operations where handling goods or fixed assets are necessary, intercity and interstate transport and telecommunications. If your company deals in any of these operations, you are a mandatory tax subject. 2) CENTRAL BANK Brazilian Central Banks has all foreign investments, loans and other activities under strict control. The Central Bank is also responsible for issuing CNPJ and CPF (the equivalent for CNPJ to individuals) for nonresident partners of legal entities incorporated in Brazil. All foreign capital transactions are cross referenced, and as such, it is of the utmost importance to have these registrations under control. A conversion of capital to loan, for example, needs to be reported in detail (regardless of the accounting and tax control), to avoid any liabilities. 2.1) Cademp The CADEMP is the registration needed for legal entities and individuals within the Central Bank. For the registration of foreign investment coming in Brazil, all parties involved must have a CADEMP (foreign investors, be they individuals of legal entities; and the Brazilian legal entity receiving the investment). 2.2) Rde-Ied It is mandatory to register all foreign investments in the Central Bank. All relations between Investor / Invested parties are registered in the Central Bank through the CADEMP identification of each party. This creates a new registration, called RDE-IED.

7 Each RDE-IED identifies one investment relation. In a local company with two partners, for example, two RDE-IED would apply (local company + partner 1 / local company + partner 2). 2.3) Rof The ROF is the channel through which financial operations are reported to the Central Bank. As an example, any foreign loans to a local company, or loans made by a local company to an entity abroad have to be reported in this section. But several other operations apply. The functioning of this form is the same as the RDE-IED. A ROF contains the CADEMP for lender and borrower. 3) VISA A Visa is required for any foreign individual to conduct business in Brazil on a permanent base, regardless of the way this action takes place: investor or manager of a local company, technical work, employee of a Brazilian company, etc. The concession of work permits to foreigners in Brazil is the sole authority of the Ministry of Labor as required by Brazilian consular authorities, and it is necessary to elaborate a formal request, that will be analyzed in a timeframe of at least 30 days. We are highlighting the main visa types that may be necessary for a foreign citizen to work on behalf of a company located in Brazil ) Investors Visa Is the authorization issued by the Ministry of Foreign Affairs allowing a foreigner to establish himself permanently in Brazil as consequence of direct investment in a local company. For that purpose it is necessary a direct investment made by this individual, in a Brazilian company (either a new one, created with this purpose, or as a new partner of a previous existing company), in minimum value of BRL It is important to alert, however, that this survey does not have the objective of analyzing all kinds of visa. For a detailed study or analysis of specific cases, we strongly recommend professional assistance to be requested.

8 The value may be lesser than BRL if a plan to create at least 10 local employments is presented along with the request. Even then, this is subject to the authorities analysis and approval. It is important to note that an investment made by a foreign company on which the individual participates does not allow a permanent investor s visa to be granted. The resources should originate from the individual himself. It should also be noted that the investment must be already made and regularly reported to Brazilian Central Bank in order to fulfill the investment requirement. 3.2) Technical Assistance / Technology Transfer contracts In case of technical assistance / technology transfer agreements between a Brazilian and a foreign entity that requires the presence of foreign individuals to carry out the activities related, without permanent intent and with no employment relation to a Brazilian company, a specific visa may be issued, in one of three possible modes: Normal: duration of one year, allowing for multiple entries in Brazil; Express: duration of 90 days, allowing for multiple entries in Brazil; Emergency: for a 30 consecutive days permanence. It is important to advise that, even though this kind of visa does not grant permanent residence, any individual that stays more than 183 days in Brazil (counting from the date of first entry) will become a resident for tax purposes. 3.3) Management visa A permanent visa may be granted to a foreign individual elected to act as a manager of a Brazilian company. The duration of the visa will be the same duration of the manager s mandate. The requesting company needs to prove the existence of USD of foreign investment per foreign manager. Or at least USD the creation of 10 local employments, for each foreign manager. 3.4) Employment contract It is possible for any Brazilian company to employ foreign individuals, with this specific visa being issued for up to 2 years, extendable. There is no need of minimum foreign investment or condition to generate new local employments.

9 The remuneration offered, however, cannot be lower than a wage paid to a local professional for an equivalent function. It is also important to observe that local employees must consist of at least 2/3 of company s headcount and 2/3 of total payroll value. 3.5) Offshore workers Foreign vessels or platforms with foreign crew entering Brazilian territorial waters for more than 30 days should have work visas for all foreign personnel on board. There is neither the need for this staff to have a formal employment relation with a Brazilian company, nor necessity of foreign investment of any kind. However, as soon as the foreign vessel completes 90 days in Brazilian water, Brazilian crew will have to be hired in increasing percentages, as follows: Foreign support vessels: o 90 days 1/3 of Brazilian crew o 180 days 1/2 of Brazilian crew o 360 days 2/3 of Brazilian crew Offshore platforms of vessels to prospect / extract oil: o 180 days 1/5 of Brazilian crew o 360 days 1/3 of Brazilian crew o 720 days 2/3 of Brazilian crew 4) SISCOMEX The Federal Revenue Customs operations have created the Siscomex / Radar system as a way of controlling and integrating all foreign trade a company established in Brazil wishes to conduct. All import / export operations conducted with a Brazilian entity can only be carried out with regular registration at this system. The data contained in this system is then cross referenced with Central Bank and Federal Revenue tax inspection data, and as such it is very important to have all information matching. In order to conduct foreign trade operation, a company must apply for Siscomex registration. This can be done through one of the following options:

10 Simplified mode a simple and easy way to register, for small foreign trade operations. This allows for operations of USD in the period of 6 months for FOB contracts; or USD in the same period for CIF contracts; Ordinary mode the registration for companies wishing to conduct bigger operations. The company has to prove to in good financial conditions and is subject to a detailed approval process from the Federal Revenue. A request for this mode can take easily 30 to 60 days, and depends on the good conditions of the company s accounting and tax returns, since information has to be provided in detail. 5) COMPANY FORMATION CHRONOLOGICAL CHART With the objective to provide a chronological understanding of the necessary tasks to set up a company in Brazil, we have developed a time table that will follow, with explanations of the necessary steps and each party responsible. Please note that we have considered a scenario with a limited liability company, with 2 foreign partners and at least one expat to act as a manager in Brazil. # Description Days Responsible Comments Provide templates for the partners to issue PoA for the legal representative in Brazil Request Company Registration office for proof of existance (company chapters) Notarize and register above documents in the local Brazilian Consulate Translation of PoA and company chapters to Portuguese Registration of PoA and company chapters in a Brazilian Notary 2 Grupo Planus Customer Customer 8 Grupo Planus 8 Grupo Planus This is just preparing the documents, and not incorporating the company itself

11 # Description Days Responsible Comments Writing Brazilian company statutes, collecting signatures and registration in the Board of Trade Register PoA and Company Chapters in the Board of Trade Requesting CPF (Federal Revenue) for the individual partners Registrations of both partners in the Brazilian Central Bank Requesting CNPJ (Central Bank) for Foreign partners (legal entities) Requesting CNPJ (Federal Revenue) for the local company Requesting city administration for functioning permit and invoice clearance Request Social Security Registration 20 Grupo Planus 0 Grupo Planus 0 Grupo Planus 5 Grupo Planus 3 Grupo Planus 5 Grupo Planus 10 Grupo Planus 5 Grupo Planus On completion, company is legally incorporated (little practical effect) This process is done simultaneously with item 6 above This process begins after item 5 and runs simultaneously with following items This will allow starting activities: opening a bank account, signing contracts, hiring staff and other relevant matters This will allow issuing invoices (nota fiscal) to any parties This is the basic social security registration - necessary to hire staff and issue letters of good standing company incorporation 14 Request CEF (Federal Bank) Employee Fund registration 5 Grupo Planus Registration is mandatory even if staff is not being hired, to issue letters of good standing At this point, the company is fully incorporated and able to handle business in any intended way (except for sales) in Brazil and abroad

12 # Description Days Responsible Comments Wiring the capital value to the Brazilian company Updating Central Bank investment information Amending the acts of incorporation with final capital value + electing expat as Manager Customer 0 Grupo Planus 15 Grupo Planus 18 Visa application 60 Grupo Planus Amending the acts of incorporation with making the expat effective manager of the company Issuing new PoA (item 1) enabling the manager to act on behalf of the foreign partners; legalization of this document as items 3, 4 and 5 above Updating Federal Revenue - capital and manager information Updating City Revenue - capital and manager information Updating Social Security - capital and manager information Travel to country of origin to pick up the visa in the Brazilian Consulate Registration procedures in the Federal Police 15 Grupo Planus 15 Grupo Planus 5 Grupo Planus 5 Grupo Planus 5 Grupo Planus Customer 5 Grupo Planus This begins after item 15 and runs simultaneously with following items As soon as the Visa application from item 18 above has succeeded. post incorporation procedures to make the expat effective as manager and the company ok with Brazilian Central Bank and tax authorities - the company may function normally during these procedures

13 6) TAX Brazil is a country with a high tax burden and a complex tax system. There are Federal, State and City taxes over a company s operation, as well as social security and labor charges. There are also specific charges over the functioning of customs system and taxes related to specific operations, such as inbound and outbound wire transfers. Depending on the kind of operation the company practices, specific taxes will apply. A service providing company, for instance, will be directly taxed for ISS (service tax, generally 5% of gross revenue). A sales company, on the other hand, will be instead taxed by ICMS (a VAT-like state tax, generally 19% minus credits on previous operations). Taxes paid to clear customs may be recoverable or not. This will depend on company taxation system (for federal taxes), destination of the imported item (manufacturing, consumption, resale). 6.1) Import taxes 6.1.1) Import of goods ) II (import tax) This tax is charged directly on the CIF value, and its rate is tariff based. Tariffs range from 0% to 35%, depending on type of product. Tariffs may be altered at any time by the Federal Executive Power, without needs to issue a law. This is a non recoverable tax ) IPI (tax on manufactured products) IPI is taxed over CIF + II value. As mentioned before, the rates are also tariff based. This is only recoverable if the imported good is assembled in a manufacturing operation. In that case, the value paid will be compensated against IPI on the sale of manufactured product. 4 Some of these taxes have specific equations for their calculation. This explanation is just for understanding the concept, there are slight differences in the actual calculation.

14 ) PIS This tax is charged over CIF + II + IPI + ICMS + COFINS + PIS (self) value. The rate is 1,65% This will be recoverable only if the company pays profit taxes on EBT mode ( , above) ) COFINS (contribution for financing Social Security) This tax is charged over CIF + II + IPI + ICMS + COFINS (self) + PIS value. The rate is 7,6% This will be recoverable only if the company pays profit taxes on EBT mode ( , above) ) ICMS (sales VAT) ICMS is the only non federal tax on import of goods. The rates classically vary from 16% to 19%, depending on the Federation State. Specific rates apply, such as basic food products (7% in most states) and in case of tax benefits. This tax is charged over CIF + II + IPI + ICMS (self) + COFINS + PIS value. This tax is recoverable against ICMS on sales operations. Import of fixed assets will render credits according to depreciation values. Import of consumables do not render credits ) Import of services / other payments to a foreign entity Whenever hiring services from a company abroad, a Brazilian company has to pay import taxes, either retained on the wire transfer or locally on top of the total amount paid ) Income Tax A general retention of 15% on the wired value applies for most international payments made by a Brazilian company. This comprises payments for royalties, interest, rent, leasing, international freights and services in general. In case of tax havens, the retention percentage raises to 25%.

15 ) CIDE If the Brazilian company is paying royalties or services of technical assistance, support, any technical services, it has to pay CIDE of 10% rate over the wired amount (before Income Tax retention) ) PIS and COFINS Will be paid over the wired amount + ISS, in the rates of 1,65% to PIS and 7,6% to COFINS ) ISS Imported services will be paid on the amount of 5% of the value of the imported services. 6.2) Direct taxes Instead of a service and sales tax, as in most countries, Brazil has at least four direct taxes with similarities to a VAT ) PIS and COFINS PIS and COFINS are two separate taxes on gross revenue. They may or may not function like a VAT depending on profit tax calculation (EBT or Assumed, as per item 5.1 above). The rates applicable will also depend on this option. Even though they are distinct taxes, their functioning is the same on most aspects, and in several cases both taxes are referred to as PIS/COFINS ) EBT Functioning PIS tax rate:1,65% COFINS tax rate: 7,60% In this case, these contributions are calculated as a VAT. The legal corporation will be able to discount some credits to reduce the amount of the taxation to be paid. These credits may be taken from costs of sale or production, or cost of expenses for providing services, beyond some specific expenses, such as rent, electricity, and financing charges whenever paid to other corporations (values paid to individuals do not render credits).

16 ) Assumed Profit PIS tax rate: 0,65% COFINS tax rate: 3,00% The application from these rates will be for companies opting for Assumed Profit, or for companies of Real Profit that dedicate themselves to specific activities (financial institutions, insurance companies, health insurance plans, security and transport of currency, cooperatives, telecommunications companies, newspapers, broadcasters, hospital services, educational institutions, collective transport of passengers by any means, telemarketers, construction companies, theme parks, hotels, real-estate agencies, among other activities). Deductions are not allowed on this situation both taxes will be charged on top of gross revenue, without credits ) ICMS and IPI ) ICMS ICMS (sales VAT) is a state tax, and each state details the rules applicable in each case. The ICMS is charged on the gross sales values, and the tax rate varies from place to place: each state has its own tax rate for internal operations (the standard rates generally range from 17% to 19%). Interstate operations rates are 12% (when selling to South and Southeastern regions) and 7% (to Northeast, North and Middle-West regions). ICMS values paid on import operations or as part of acquisition for inventory will render credits against ICMS due on sales. In case of fixed assets, ICMS credits will be appropriated according to depreciation. Consumables do not render credits. In an invoice, ICMS is built in the value of the goods ) IPI IPI is a federal tax charged on the sales of manufactured products. This tax functions like a VAT during the manufacturing process it is paid on importation of manufactured products, and on every step of the production chain, whenever the product suffers modifications. The first sale without modification of the product absorbs the cost of this tax on previous operations.

17 The rates are tariff based, ranging from 0% to 300% (this one specific for cigarettes, but most maximum rates are between 20% - 30%). In an invoice, IPI is added to the value of the goods, affecting the total value of an invoice ) ISS ISS is a tax charged on services provided. It is generally charged on the overall value of the service provided, at a rate usually from 2% to 5%, with few or no possibilities to compensate credit from previous operations (according to the law of each city). 6.3) Export taxes Most taxes are exempt on export operations. PIS and COFINS are exempt on any service provided to a foreign legal entity and paid with entry of financial resources in Brazil. Export of goods are always exempt of IPI and ICMS. In case of export of services, ISS exemption will apply if the service has no results in Brazil. Profits taxes, of course, do not differentiate between internal or external revenues. 6.4) Tax on profit Brazil has two taxes on profit: IRPJ (Corporate Income Tax) and CSLL (Social Contribution over Net Profit). IRPJ rate is 15%, charged on net profit, plus an additional 10% for net profit in excess of BRL / month. CSLL has a rate of 9% over the same base. However, Brazilian tax regulations allows for two different ways to calculate your net profit, as follows: 6.4.1) EBT The basis for calculation of the tax, as would be expected, is the net profit, or that is to say the net operational results after the interest, depreciation, amortizations (Equity Before Tax), therein included all the income, fortuitous or not, operational or not, independent from the denomination that may be given them (Legal Decree 1.598/77, art. 6). EBT is adjusted for tax purposes, being added on undeductable expenses (such as expenses not related to company s activities) and suffering deductions on non taxable

18 earnings (such as equity gain on a controlled company). It is over this adjusted base that profits taxes will be charged. Accumulated losses in EBT mode can be carried forward, but the future offset will be limited to 30% of the profit achieved every year ) Assumed Profit In some cases 5, the law allows for the option of Assumed Profit. In this mode, the taxable profit is not EBT, but instead a percentage of gross income. That option, therefore, may be advantageous of if the actual profit is higher than EBT. If the actual profit is lower, however, there is not the possibility to cancel this option, and the company would have to pay profit taxes without profit. The key to enjoy the benefit is to plan ahead. And know your profitability. The primary possibilities of opting for Assumed Profit are: Transport (except of cargo): the profit is arbitrated at 16% of the billing (the Rates of 15% and 10% of the IR, when applicable, shall be calculated over 16% of the gross billing of the company); Service Providing in general, intermediation, management, location or cessation of non-fixed assets or rights of any nature: the profit is arbitrated at 32% of the billing; Commerce, Industry, Hospital Services: the profit is arbitrated at 8% of the billing (12% for CSLL). To the taxable base calculated according to the Assumed Profit must be added other income, such as capital gain on the sales of assets and rights and financial income. Assumed Profit taxation does not allow accumulated losses to be carried forward. 5 Inasmuch as some requisites are met, such as: companies with annual billing up to BRL 48 million; that are not financial institutions or such like; that do not receive dividends from foreign invested companies; that do not enjoy exemptions from IRPJ.

19 6.5) EBT / Assumed Profit comparation (tax planning) As demonstrated, EBT and Assumed Profit taxation modes have different characteristics, and as such there is space for tax planning. On one side, EBT has higher PIS and COFINS rates, allowing for credits on these taxes; but the company pays its profit on the effective profit. On the other hand, in Assumed Profit, PIS and COFINS have lesser rates, but profit taxes will be charged over a fixed rate, regardless of effective profit by the end of the year. This leads to interesting tax planning strategies, that could be used to lessen taxes, depending on the reliability of the company s budget for the following year: SERVICE PROVIDING COMPANY Scenario 1: Month result: Operational Profit Scenario 2: Month Result: Operational Loss EBT ASSUMED PROFIT SIMULADO EBT ASSUMED PROFIT Revenues Revenues Gross Revenue , ,00 Gross Revenue , ,00 Revenue Deduction Revenue Deduction Costs (20.000,00) (20.000,00) Costs (20.000,00) (20.000,00) ISS (5.000,00) (5.000,00) ISS (5.000,00) (5.000,00) PIS/COFINS (9.250,00) (3.650,00) PIS/COFINS (9.250,00) (3.650,00) Expenses Expenses Payroll (10.000,00) (10.000,00) Payroll (30.000,00) (30.000,00) Administrative (5.000,00) (5.000,00) Administrative (20.000,00) (20.000,00) General / other (5.000,00) (5.000,00) General / other (20.000,00) (20.000,00) Equity Before Tax Result , ,00 Profit Tax calculation Equity Before Tax Result (4.250,00) 1.350,00 Profit Tax calculation IRPJ (6.862,50) (4.800,00) IRPJ 0,00 (4.800,00) Additional IRPJ (4.575,00) (3.200,00) Additional IRPJ 0,00 (3.200,00) CSLL (4.117,50) (2.880,00) CSLL 0,00 (2.880,00) Result Result Lucro Final , ,00 Lucro Final (4.250,00) (9.530,00)

20 As we can see, if the effective profit margin is higher than the assumed margin (8% - 16% - 32%), the Assumed Profit taxation mode is generally more effective. If a lesser profit margin is expected, the EBT mode would probably be more effective. COMMERCIAL COMPANY Scenario 1: Month result: Operational Profit EBT Revenues ASSUMED PROFIT Scenario 2: Month Result: Operational Loss SIMULADO EBT Revenues ASSUMED PROFIT Gross Revenue , ,00 Gross Revenue , ,00 Revenue Deduction Revenue Deduction Costs (20.000,00) (20.000,00) Costs (20.000,00) (20.000,00) ICMS (19.000,00) (19.000,00) ICMS (19.000,00) (19.000,00) PIS/COFINS (9.250,00) (3.650,00) PIS/COFINS (9.250,00) (3.650,00) Expenses Expenses Payroll (10.000,00) (10.000,00) Payroll (30.000,00) (30.000,00) Administrative (5.000,00) (5.000,00) Administrative (20.000,00) (20.000,00) General / other (5.000,00) (5.000,00) General / other (20.000,00) (20.000,00) Equity Before Tax Result , ,00 Profit Tax calculation Equity Before Tax Result (18.250,00) (12.650,00) Profit Tax calculation IRPJ (4.762,50) (4.800,00) IRPJ 0,00 (4.800,00) Additional IRPJ (3.175,00) (3.200,00) Additional IRPJ 0,00 (3.200,00) CSLL (2.857,50) (2.880,00) CSLL 0,00 (2.880,00) Result Result Lucro Final , ,00 Lucro Final (18.250,00) (23.530,00)

21 6.6) Payroll taxes A Brazilian company has to pay the following social charges over the Gross payroll value: INSS The main social security contribution 20% of payroll value FGTS An employee compulsory fund 8% on top of gross salary Social Assistance A contribution to fund several government services destined to qualify, train, educate and assist employees 5,8% of payroll value SAT Destined to cover labor accidents ranges from 1% to 3% of payroll (for the office branch, 1%; for the industry branch, 3%). By the end of the year, a company needs to pay an extra salary (Christmas wage) per year, for each employee (if employment has less than year, the payment is proportional). For every year worked, the employee is entitled to 30 days of vacation. When going out on vacation, the employee is granted an extra salary added of 1/3 salary. Considering all direct charges over the salary plus monthly accruals for Christmas wage and vacation, the tax burden over payroll could be demonstrated in the following way: Salary 1.000,00 INSS 20% 200,00 Social Assistance 5,8% 58,00 SAT 3% 30,00 FGTS 8% 80,00 Christmas wage accrual 83,33 Vacation wage accrual 111,11 Payroll charges Xmas wage acc. 30,67 Payroll charges Vacation acc. 40,89 Total 1.634,00 To the result of this calculations, it should be considered any other benefits, such as food and transport tickets, health plan, life insurance and other provided by the local management of the company.