Latin America: Valuable Business Opportunities and Complex Tax Challenges

U.S. goods exports to Latin America represent one of the largest and fastest-growing components of all U.S. global exports. Just ask the U.S. Department of Commerce. Last year, the Commerce Department launched its “Look South” initiative to help more U.S.-based companies of all sizes understand why expanding into Latin America markets “will improve their bottom line.”

Domestic companies that look south will see ample business opportunities – along with many complex and dynamic transactional tax management challenges.

A brief look at Brazil’s tax environment offers a vivid example. The country’s standard indirect tax is helpfully abbreviated as ICMS, which stands for Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações. ICMS is “a value-added tax on sales and services that applies to the movement of goods, transportation and communication services, and to the supplying of any goods,” according to the Tax Executives Institute (TEI).

Although Brazil’s average indirect taxes rate was indicated as 19 percent in 2014, there are a number of other taxes that figure into indirect taxes, depending on the location (i.e., federal, state, and municipal taxes) and industries in which a company operates. In addition to the ICMS, it is common for a company to also be subjected to:

• IPI, short for “Imposto sobre Produtos Industrializados,” which is Portuguese for tax on industrialized products. IPI is a federal tax that is applied to all national and foreign products that have been modified in some industrialized way for consumption or use and is a tax calculated on transactions with goods produced or imported;
• PIS, short for “The Programa de Integração Social” (Federal Contribution for Social Integration Program), refers to social contributions, payable by legal entities, in order to finance the payment of insurance unemployment allowance and participation in revenues from agencies and entities for public and private workers. This contribution applies to corporate gross revenues;
• COFINS or "Contribuição para o Financiamento da Seguridade Social" is a federal contribution tax, based on gross revenues of business sales; and
• ISS is short for “Imposto sobre Serviços,” a tax applied to the services provided to a third party by a company or professional and is paid by the service provider.

Are you still with me?

Similar complexity pervades the tax regimes of other Latin American countries. A recent Vertex webcast, Tax Challenges and Pitfalls in Latin America, examines common, region-specific challenges and pitfalls associated with managing tax-compliance processes in Latin America, with a special focus on Argentina, Brazil, and Mexico. If your company is considering pursuing Latin America’s valuable business opportunities, I encourage you to tune into the webcast. Harnessing the value of operating a business there requires an understanding of the region’s tax complexities.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.