Brazil Insider Part 2: Sefaz

Those who have already dealt with a Brazilian subsidiary which commercializes and/or manufactures any kind of good, have certainly already heard about “Sefaz”.

Sefaz is the abbreviation of “Secretaria da Fazenda do Estado”, the tax authority with jurisdiction for one of the 26 Brazilian states and the Federal District.

Brazil, as a federal republic, is distinguished by a 3-level taxation system. Indeed, taxes may be established by the federal tax authority (Secretaria da Receita Federal or RFB), the state tax authorities (Sefaz), and by the municipalities. The Federal Constitution determines which taxes underlie the competence of each authority – federal, state or municipal.

Among the taxes that are established by Sefaz is ICMS (“imposto sobre operações relativas à circulação de mercadorias e sobre prestações de serviços de transporte interestadual, intermunicipal e de comunicação”), which is equivalent to the VAT and falls upon the commercialization of goods, the rendering of transportation services and communication services. In principle, all other services are subject to taxation established by the municipality and are not subject to taxation by Sefaz.

As a consequence, only companies that manufacture, commercialize or transport goods are required to be enrolled with Sefaz and have a state tax number called “inscrição estadual”. As a general rule, companies that only render services or pure holding companies do not have an “inscrição estadual”.

While including in the statutory corporate scope of the company an activity that will require the enrollment with Sefaz or changing the address of the head offices or of any branch of a company that is enrolled with Sefaz, one should bear in mind that the location(s) of the company (headquarters, branches) must be appropriate in view of the corporate purpose described in the articles of association or bylaws. Otherwise, the enrollment is dismissed and the corporate act which either amends the corporate purpose or the address of the head office or a branch is not registered with the Commercial Registry.

Therefore, whenever foreign companies incorporate a subsidiary in Brazil, in the first moment, as the corporate capital has not yet been paid and, in general, the company has no means to rent or purchase a property which is suitable for carrying out commercial or industrial activities, the corporate purpose of the company should not comprise such activities yet. Such activities should only be included in the corporate object after the company already established an infrastructure which enables it to operate according to its corporate purpose.

By a new application for an “inscrição municipal” and by each change of the address of a company which holds an “inscrição estadual”, an agent of the Sefaz usually pays a visit to the location in order to verify if the location complies with the requirements. It is, as a general rule, not possible to schedule such visit, and, depending on the competent Sefaz office, it may take weeks for the visit to occur and the enrollment or the update of the enrollment to be accepted.

Back to Brazil Insider Part 1: CNPJ and CPF registration