IPI: The Brazilian Tax on Industrial Products

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Since it is controlled by the Federation, the IPI rate is identical throughout the Brazilian territory, but varies according to the product.

SCOPE

The IPI falls under the authority of the Federation and deals with domestic and foreign industrial products.

The triggering events are:

  • Output of industrial products at the production site,
  • Release after Customs clearance of imported industrial products.

IPI TAXPAYERS

All industrial establishments are IPI taxpayers. Industrials are all entities processing product for all or part of their normal activity. The legal definition of an industrial process is as follows: any operation that changes the nature, operation, presentation, performance or destination of a product (Decree 2.637/98).

BASIS FOR CALCULATION

The basis for calculation of the IPI is:

  • For domestic products, the price of the product leaving the facility,
  • For imported products, the customs price, plus importation tax, plus taxes and customs exchange commissions paid by the importer (see section on export to Brazil).

RATE

The IPI is said to be a ‘selective’ tax. In this sense, its rate is set according to the economic and social utility of the product. Thus, products of an “extravagant” nature, such as perfumes, yachts and luxury cars, or detrimental to public health, such as cigarettes and liquors, are subject to a high rate, whereas ‘staple’ products benefit from a reduced rate.

The Federal government uses this tax as a stimulus in its economic policies, and supports specific sectors of industry. In 2013 – to support the car manufacturers – it has reduced the IPI rate on the purchase of motor vehicles.

For the rate applied to different products, it is necessary to refer to a table made available to the public by the Ministry of Economy. This table (called TIPI for ‘Table of Taxes on Industrialized Products’) is available on http://www.receita.fazenda.gov.br (in Portuguese only) and contains an exhaustive list of different products divided into twenty sections.

The IPI should be calculated and paid each month.

RECOGNITION FOR IPI

Just like the ICMS, IPI is “not cumulative”. Thus, companies get IPI credit for the purchases of raw materials, packaging and other products incorporated into their own production.

An essential condition to qualify for IPI credit: to have an invoice issued in full compliance with the law, and clearly disclosing the amount of IPI.

The IPI credit is valid for 5 years from the date of issue of the invoice.

It is important to note, that for industrial companies, the IPI is calculated on the basis of the gross price paid inclusive of ICMS.

Calculating IPI with ICMS

Price with no tax: 5.395,00
ICMS (17%): 1.105,00

Price with ICMS (17%): 6.500,00
IPI (10%): 650,00

Total Price: 7.150,00

Calculation:
Price with ICMS = 5.395,00 / 0,83
ICMS = 6.500,00 * 0,17
IPI = 6.500,00 x 0,10

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