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5.1. Tax Base for Resident Entities

There is no distinction in terms of the tax burden, between local and foreign-owned companies.

Brazilian resident companies are subject to corporate income taxes (CIT) on their worldwide income. Foreign branches, agencies or representative offices of Brazilian companies are also subject to Brazilian tax on their income earned overseas. In general, foreign-source losses may not offset Brazilian source income. A foreign tax credit is available.

Corporate taxable income is taxable under a unitary system whereby a single tax rate is applied. This rate is currently 15%, with a surcharge of 10% on taxable income over a certain level (R$ 240,000, approximately US$ 117,000).

Tax must be calculated and paid on a monthly or quarterly basis.

In respect of the relationship between companies and shareholders, Brazil follows a system in which corporate taxable income is taxed to the company and distributions of net income to shareholders are not subject to WHT. In general, trading profits which include profit from the sale of goods, services and consulting are taxed.

Taxable income is computed by adjusting netbook income for non-taxable income and non deductible expenses.