Software companies, IT services and services in general subject to the Municipal Tax on Services (ISS) in Brazil need to analyze closely how the business structure is organized and if the tax is being correctly paid.
Find are the basic aspects to consider below:
1. Tax Jurisdiction: the general rule is that tax is due at the Municipality where the service is provided, which is where the “core” of the operation is. The definition of it can vary greatly depending on the nature of the service provided and thus must be analyzed specifically.
2. Multi-Establishment Companies: many companies have headquarters and several branches, but tax cannot be collected by the Municipality either where are the headquarters or the branches indistinctly. It is necessary to identify the place where the service is actually provided to know where the tax is due.
3. “Centralized” or “decentralized” collection: the nature of the service provided and the structure existing at the branches are key factors to know whether, in fact, it is possible or not to decentralize the tax collection. If the service is provided at the branches, the Municipal tax on Services is due to the respective Municipalities where the branches are located. Otherwise it is due at the headquarters. The existence of a local “substancial” establishment must be analyzed.
4. Specific legislation: the tax is levied at rates ranging from 2% to 5%, depending on the Municipality and on the type of service. Because the tax is municipal, the legislation is specific and must be analyzed on a case-by-case basis. In addition, as each Municipality tends to recognize itself as the tax jurisdiction, it is up to each company to carefully analyze how ISSQN is collected.
It is essential to understand that the mere constitution of a branch is not decisive to define the tax jurisdiction. The structure of the operation must be analyzed in detail, considering the kind of service provided, to know where the Municipal Tax on Services (ISS) should be collected in Brazil.