Businesses operating in Brazil should understand the basics of DIFAL, a supplemental ICMS tax that helps balance the tax burden of ICMS (the state value-added tax on the circulation of goods and services) on interstate operations.
Each of Brazil’s Federation Units carries an ICMS rate for both interstate and intrastate transactions, and the variations in rates can discourage intrastate transactions and harm revenue. Brazil introduced the supplemental DIFAL tax to help level the playing field. When goods and services are purchased, DIFAL protects the tax revenues of the destination states.
Whether you currently do business in Brazil, or you’re planning to expand your footprint to Brazil, it’s imperative that you know how DIFAL and ICMS work. This infographic takes a high-level look at how DIFAL is calculated, who’s responsible for calculation and remittance, and which state receives what in an interstate transaction — all from the dedicated Latin America tax experts at Vertex.