Corporate - Deductions

Last reviewed - 28 November 2023

Depreciation and depletion

Depreciation is allowable on a straight-line basis over the useful life of the asset. The annual rates provided by the RFB normally allowable are 10% for machinery, equipment, furniture, and installations; 20% for vehicles; and 4% for buildings. Accelerated depreciation is allowed for companies with a two or three working shift operation by increasing normal rates by 50% and 100%, respectively.

Depletion allowances are allowed for natural resources on a useful-life basis. Special incentive depletion allowances are granted for mining and oil & gas operations.

For Brazilian accounting purposes, companies should generally perform or obtain a useful life study for fixed assets in order to determine the acceptable depreciation rates. For tax purposes, the depreciation considered deductible for the corporate income tax computation is generally determined based on the application of the annual depreciation rate for accounting purposes over the asset’s acquisition cost. In cases where the depreciation registered in the books of the company is lower than that calculated based on the depreciation charts issued by the Brazilian Revenue Service, the difference can be excluded from the company’s taxable income calculation made under the actual profits method.


Under certain requirements, goodwill paid upon the acquisition of the shares or quotas of a permanent investment may be amortised for tax purposes before realisation/impairment occurs (e.g. after a merger or a spin-off). It is important to note that the amortisation of goodwill is not permitted in Brazil for accounting purposes.

Whenever the cost of a share acquisition is higher than the net equity value of the acquired company, the acquisition cost of the investments should be segregated into:

  1. the net equity of the acquired company
  2. the fair value of the net assets, and
  3. the goodwill deriving from future profitability, which corresponds to the remaining balance from items (i) and (ii).

Upon a merger between buyer and acquired company (downstream or upstream), the amount of goodwill can be amortised for tax purposes over a period of not less than five years, provided certain conditions are complied with.

These conditions include the preparation of an independent appraisal report supporting the value referred to in (ii) above, which will need to be filed with the RFB or a summary with the Register of Deeds and Documents, and that the transaction has been carried out among unrelated parties.

Taxpayers wishing to continue to apply the previous rules for goodwill amortisation in relation to acquisitions made on or before 31 December 2014 had until 31 December 2017 to complete the merger of the target and the acquiring entity.

Amortisation of patents, trademarks, and copyrights, based on their useful life, is a deductible expense within approved limits.

Start-up expenses

As a general rule, for tax purposes, start-up/pre-operational expenses may be deferred and amortised on the straight-line basis over a period of not less than five years, beginning the month in which the business starts operating.

For purposes of corporate income tax calculation based on the actual profits method, the following expenses shall not be computed within the period in which they are incurred: (i) start-up organisation expenses, including from the initial operation phase, when the company only partially used its equipment or its installations and (ii) expenses for expansion of industrial activities.

The expenses mentioned above shall be excluded for purposes of computation under the actual profits method, based on a minimum period of five years, as of the beginning of the regular operations.

Research and development (R&D) expenditures

At the option of the company, R&D expenditures may be deducted when incurred or deferred until termination of the project and then amortised over a period of not less than five years.

R&D expenses may be excluded, for purposes of computation based on the actual profits method, when registered as non-current asset intangibles, during the computation period in which they were incurred. To use this benefit, the taxpayer must add to the net income, for purposes of computation based on the actual profits method, any amount previously recognised for the relevant intangible asset, through amortisation, sale, or write-off.

Interest on net equity (INE)

Companies can pay interest (calculated on a pro rata basis and up to a given rate, known as the ‘long-term interest rate’ [TJLP], which is currently set at 6.55%/year) to share/quota holders, based on the company’s net equity. Such interest, which may not exceed the higher of 50% of the annual profits or 50% of the accumulated earnings and profits, is deductible for both IRPJ and CSLL purposes and is subject to 15% IRRF at the source (or 25% if the beneficiary is located in a tax haven jurisdiction). Whenever the beneficiary is a legal entity subject to normal income tax in Brazil, the tax withheld at the source may be taken by the recipient as a tax credit. If the beneficiary is a Brazilian resident individual, such interest will not become subject to any further taxation.

Interest and other payments to entities in a tax haven or under a privileged tax regime

Provisions similar to those for thin capitalisation (see the Group taxation section) are also applicable to interest paid or credited by a Brazilian entity to an individual or legal entity (whether or not a related party) resident or domiciled in a tax haven or in a jurisdiction under a privileged tax regime. In these cases, the interest expense is only deductible for Brazilian income tax purposes if it is viewed as necessary to the company’s activities and the total amount of the Brazilian entity’s debt with any foreign party resident or domiciled in a tax haven or in a jurisdiction under a privileged tax regime does not exceed 30% of the Brazilian entity's net equity.

The Law also provides that amounts paid, credited, delivered, used, or remitted under any title, directly or indirectly, to related or unrelated individuals or legal entities that are resident or domiciled in a tax haven or in a jurisdiction under a privileged tax regime will only be viewed as deductible for Brazilian income tax purposes if all of the following conditions are met: (i) the effective beneficiary of the payment is identified; (ii) there is evidence that the payment beneficiary has operational capacity (i.e. substance); and (iii) there is adequate documentation to support the relevant payments and the corresponding supply of goods, rights, or utilisation of services.

Tax havens and privileged tax regime lists

The RFB has issued a list (i.e. ‘black list’) detailing the jurisdictions that are considered not to tax income or to tax it at a rate lower than 20%, or that deny access to information regarding shareholding and ownership of assets and rights.

Another list (i.e. ‘grey list’) contemplates jurisdictions that are considered to have ‘privileged tax regimes’, as set forth in Brazilian legislation. The following types of entities are included in the grey list:

  • Holding companies incorporated under the law of Denmark, which do not carry out substantive economic activity.
  • Holding companies incorporated under the law of the Netherlands, which do not carry out substantive economic activity.
  • International trading companies (ITCs) incorporated under the law of Iceland.
  • Holding company, domiciliary company, auxiliary company, mixed company, and administrative company incorporated in Switzerland and other legal entities subject to a ruling issued by the tax authorities that apply a combined tax rate lower than 20%.
  • Limited liability companies (LLCs) incorporated under the state law of the United States, owned by non-residents and not subject to federal income tax.
  • ITCs and international holding companies (IHCs) incorporated under the law of Malta.
  • Holding companies incorporated under the law of Austria that do not carry out substantive economic activities.
  • Foreign Trade Zones located in Costa Rica.
  • International Business Centre of Madeira (IBCM) in Portugal.
  • 20 different regimes of companies incorporated in Singapore.

A foreign holding company is deemed to carry out substantive economic activities if it has, in its country of domicile, operating capacity to manage and make decisions regarding (i) activities with the purpose of generating income from its assets or (ii) management of equity interests with the purpose of generating income in the form of profit distributions and capital gains.

Operating capacity should be measured by (i) the existence of physical facilities and (ii) qualified employees to manage and make decisions according to the complexity of the tasks to be performed. It is important to note that the definition only expressly makes reference to Dutch and Danish holding companies although it also could be considered to apply to Austrian holding companies.

It is generally understood that the concept of a privileged tax regime is subject to stricter transfer pricing, thin capitalisation, and tax deduction rules. There are also a number of adverse implications from a Brazilian CFC perspective. For the jurisdictions considered tax havens, in addition to the tax consequences applicable for privileged tax regimes above, the IRRF rate due on capital gains and cross-border payments, such as services fees, royalties, and interest, is generally 25%.

In 2014, an NI issued by the RFB reduced from 20% to 17% the minimum income tax rate used as a reference to list the tax havens and privileged tax regimes. This threshold was reduced for jurisdictions and regimes aligned to the ’international standards of fiscal transparency‘; however, jurisdictions that meet such requirements are not automatically excluded from the black or grey lists.

Bad debt

Losses on bad debts are tax deductible, depending on the amounts, time overdue, and administrative and/or legal actions taken to recover losses. Losses arising from inter-company transactions are not tax deductible.

Charitable contributions

Donations are deductible, up to certain limits, if recipients are registered as charitable institutions.

Travel expenses

Travel expenses may only be considered deductible if they are incurred in connection with business activities, duly documented and substantiated.

Medical and pension expenses

Expenses of group medical care and health insurance programmes for employees and contributions to private supplementary pension schemes are generally considered deductible if supplied to all employees indiscriminately.

Fines and penalties

Punitive tax/contribution penalties are not deductible for tax purposes.


Taxes, contributions, and related costs, such as late-payment interest, are generally deductible for tax purposes on an accrual basis. This rule does not apply to taxes/contributions being or to be challenged by the taxpayer at any level of litigation, which are deductible for tax purposes only on a cash basis.

Tax losses carried forward

Tax losses (i.e. for IRPJ and CSLL purposes) may be carried forward without any time limitation. However, the tax loss may not reduce taxable income by more than 30% of its amount prior to the compensation of the tax loss itself (and is subject to certain loss recoupment rules).

There is no carryback of tax losses or monetary restatement.

Payments to foreign affiliates and related companies

Royalties and technical service fees (with transfer of technology or know-how) payable to foreign companies with a direct or indirect controlling interest in the Brazilian company are deductible for tax purposes (observing applicable deduction limits), provided the contract has been duly registered with the National Institute of Industrial Property (Instituto Nacional da Propriedade Industrial or INPI) and approved by the Brazilian Central Bank.

Payments under cost sharing arrangements

Reimbursements paid under cost sharing arrangements may be considered deductible for IRPJ and CSLL purposes, to the extent that certain requirements set forth by administrative decisions (especially tax ruling COSIT 8/2012) are met by the company performing such payments.