How Software as a Service (SaaS) works in Brazil

The import of service is heavily taxed in Brazil and it follows its own tax regime. This has always imposed an important challenge to service companies that want to operate in the country without opening a local subsidiary. In general terms, software-as-a-service transactions should be taxed the same way as a regular service transaction; meaning that in services provided by a foreign entity, the Withholding Income Tax should apply. Nevertheless, this does not correspond to the practice.

Credit card companies don't add taxes automatically

Brazilian individuals are accustomed to use their personal credit card to acquire foreign services, including gaming, social media, apps and other entertainment-focused items. Currently, credit card companies are not automatically adding applicable taxes to such international acquisitions. Individuals are personally liable to and responsible for reporting international purchases and collecting applicable taxes. A substantial segment of Brazilians is not yet familiar or compliant with such requirements. In practical terms, this situation creates a difference between regular services and SaaS and relieves the tax burden from SaaS operations.

The current practice is outside the legal ruling

Changes in the control mechanism can happen at any time and might modify the dynamics of the market. Companies offering SaaS in Brazil should be aware of this situation and should be prepared to respond accordingly.