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Brazil’s E-Commerce Compliance Program: Understanding New Tax Advantages

Brazil has taken a significant step forward in the global e-commerce space by creating a new compliance program that will change the way companies navigate duties and taxes in the Brazilian market. This initiative is particularly impactful for direct-to-consumer (DTC) brands, providing some relief from substantial import tariffs and offering them a more streamlined and transparent approach to doing business in the country. In this article, we’ll dive into the intricacies of import taxes in Brazil, changes brought about by this new directive, and the potential benefits for DTC brands.

What is Brazil’s New E-Commerce Compliance Program?

Brazil recently announced its plan to change customs regulations for e-commerce businesses that participate in a new customs compliance program, the Conforming Shipping Program or Programa Remessa Conforme (PRC) in Portuguese. Under these new rules, the existing 60% import tariff will not be charged on purchases of up to US$50 for companies who enroll in the program and collect a 17% ICMS state tax, Brazil’s value-added tax (VAT), prior to shipping. While this new initiative officially took effect on August 1, 2023, additional details are still being released.

How to Register

While the program is still under development, companies can register through this link to apply for Brazil's new e-commerce compliance program. It’s important to note that participants must sign a contract with either a shipping carrier or Correios, Brazil's postal service, if they are not established as a legal entity in Brazil.

Merchants must also inform customers on their checkout page that (1) the products they are purchasing are sourced from abroad and will be imported into Brazil and (2) goods are required to clear customs and subject to Brazilian federal and state taxes.

Landed costs must also be itemized and individually display the following elements:

          •  Product Price
          •  Shipping Cost
          •  Insurance
          •  Postal Tariffs (if applicable)
          •  Import Tax
          •  ICMS Tax
          •  Total Sum of These Items

* Shipping and insurance costs can be included in the product price, provided that consumers are clearly notified that the displayed amount includes these charges.

The Previous Import Tax Structure in Brazil

Brazil's complex import tax system has traditionally been a challenge for e-commerce businesses due to the numerous variables that impact landed cost. Import duties are based on the CIF price of an imported product – meaning that when assessing the value of an item for the purpose of collecting duties and taxes, the total product price, insurance costs, and shipping fees are all considered. Here’s a list of all the import taxes goods are subject to when shipping to Brazil.

Brazil’s Import Taxes:

  • Companies are charged a hefty federal tariff of 60% on all imports to Brazil, regardless of their value, while postal shipments sent from one individual to another (C2C) may be granted an exemption for goods up to US$50. Note that the de minimis is zero for B2C shipments. This system has historically created a loophole for some Asian e-commerce giants that have been sending shipments as if they were individuals rather than a business to gain tax exemptions.

  • Merchandise and Service Circulation Tax (ICMS) is a Brazilian state government VAT that typically varies between 17-19% based on the end customer's location. This tax is applied to the sum of a product’s CIF value plus II and IPI.

  • Import Duty (II) is a federally mandated, product-specific tax applied during customs clearance for imports. It's calculated based on the product's CIF value, with rates typically ranging from 10-35%.

  • Industrialized Product Tax (IPI) is a federal tax applied to imported manufactured products, with rates ranging from 0-15%. Its purpose is to support Brazil's domestic production by imposing taxes on imports that compete with locally-produced goods.

What’s Changing?

The new e-commerce compliance program introduces several pivotal changes for companies that participate including:

  • Tax Exemptions: The Ministry of Finance will not charge duties on purchases up to US$50 where VAT is collected in advance.

  • Uniform State VAT: A uniform VAT tax of 17% will replace the varied ICMS rates by state.

  • Advanced Tax Payment: For PRC registered shipments, merchants will need to collect ICMS from their customers prior to shipping.

  • Transparency: Companies must inform consumers about the product's origin and its total value, including federal and state taxes. 

  • Faster Customs Clearance: The new program promises quicker customs clearance, enhancing the customer experience.
     

B2C Import Method Import Tariff ICMS Rate
(PRC Registered) Postal/Courier Under $50 USD 0 17%
(PRC Registered) Postal/Courier Over $50 USD 60% 17%
(Unregistered) Postal/Courier of Any Value 60% 17% - 19%

 

The Benefits of Brazil’s New E-Commerce Compliance Program

For DTC brands looking to expand their presence in Brazil, this new directive presents appealing opportunities. It not only simplifies the tax structure, but also promises a smoother shopping experience for consumers and a quicker customs clearance process. Additionally, the program is designed to close gaps that some Asian e-commerce giants previously exploited, thereby promoting fair competition. Brands that align themselves with this new compliance program stand to gain a competitive edge in the Brazilian e-commerce market.

How Passport Can Help

Passport is the modern international shipping carrier for e-commerce. With best-in-class parcel logistics, in-house shipping and compliance experts, and a user-friendly software platform, Passport is the shipping carrier that growth-focused brands trust to expand their business internationally

Our team is ready to assist you in navigating the Brazilian market by guiding brands through PRC registration, ensuring checkout pages are compliant, and continuing to monitor these new tax regulations. Simply reach out to us at global.trade@passportshipping.com to get started.

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