With respect to Income Tax on corporations, Brazil has 2 taxes. One is the Corporate Income Tax, at a rate of 15%, increased by a surtax of 10% when exceeds a certain amount (which is not high). The second is the Social Contribution Tax at a rate of 9% (some sectors has a much higher rate, as banking, for example, which goes up do 20%).
The tax basis of these two taxes are basically the same, so in general, the total rate is considered to be 34%.
Overall, tax losses may be carried forward indefinitely but can only be used by 30% each fiscal year. In a corporate restructuring of M&A, tax losses of the incorporated company cannot be used by the incorporating entity. Even when the incorporated company ceases to exist the use of tax losses is limited to the percentage of 30%.
Therefore, this is a major point of attention in deals involving M&A, and should be addressed by planning the merger much earlier in the process or by calculating the impacts in the purchasing price.
