Setting Up Brazil Tax — End to End

Brazil is the most complex tax system REDA supports — several taxes on one line, some embedded in the price (por dentro), rates that depend on your regime and on who the buyer is. This article shows how to configure the data so all of that is handled for you. Set it up once and every invoice gets the right stack of taxes, posted the Brazilian way. We’ll configure a small catalogue, then post a sale to prove it.

The configuration chain

Our example catalogue

Step 1 — Jurisdictions

The seed creates BR plus the 26 states + Distrito Federal. ICMS is a state tax with state-specific rates, and the seller’s and buyer’s states decide intra- vs inter-state — so the state jurisdictions matter (e.g. BR-SP São Paulo, BR-RJ Rio de Janeiro).

Step 2 — Tax Types (the stack)

Brazil’s taxes ship as separate Tax Types, and two behaviours do a lot of work. Recoverable is a flag on the Tax Type itself; embedded (por dentro) is set per rule (Tax Included in Price on each Tax Rule), so the seeded rules for a tax carry it consistently. Here is how each tax behaves:

The embedded behaviour is the crucial one: an embedded tax is inside the price, so REDA posts it as a reduction of revenue, not an addition to what the customer owes (more in the payoff).

Step 3 — Tax Profiles

Step 4 — Party Tax Profiles (regime + contributor)

In Brazil the party profile carries two things that change the tax: your regime and whether a party is a state-tax contributor. This is where two of the four “what makes Brazil different” behaviours live.

• Regime → PIS/COFINS rate. Lucro Real = non-cumulative (1.65% / 7.6%, recoverable); Lucro Presumido = cumulative (0.65% / 3.0%, not recoverable). Set on your entity’s profile.
• Contributor → DIFAL/FCP. Those fire only on interstate sales to a non-contributor (a consumer). Set on the buyer’s profile.

Step 5 — Fiscal Operations (intra/inter, CFOP)

As in India, the engine derives intra-state vs inter-state from the two states and selects the matching CFOP operation (Brazil’s fiscal-operation code, e.g. BR-5101 intrastate, BR-6101 interstate). This drives the ICMS rate (internal vs interstate) and gates DIFAL/FCP. You don’t set it on the invoice.

Step 6 — Tax Rules (how the stack assembles)

The seeded rules wire the stack together. You rarely edit them; it’s worth knowing how each tax is gated:

Step 7 — Classify your catalogue

Give each product a fiscal profile (with its NCM code — Brazil’s harmonized product tariff code) linking it to a treatment bucket:

Step 8 — GL mappings (incl. the deduction accounts)

Brazil needs a third kind of mapping that other countries don’t. As well as the Sales (payable) and Purchase (input-credit) mappings, each embedded sales tax needs a Sales Deduction mapping pointing at a contra-revenue account:

Step 9 — Register, set your regime & defaults

The payoff — the stack, posted the Brazilian way

Sell R$10,000 of resale goods, intrastate in São Paulo, to a business (contributor). The configured data assembles the stack: ICMS 18% (embedded), PIS 1.65% + COFINS 7.6% (embedded, Lucro Real), CBS 0.9% + IBS 0.1% (on top). DIFAL/FCP don’t fire (intrastate, and the buyer is a contributor). The journal:

Debits R$12,825 = Credits R$12,825. The customer pays R$10,100 (price + the on-top CBS/IBS); net revenue is R$7,275 (R$10,000 gross − R$2,725 embedded ICMS/PIS/COFINS). The embedded taxes reduced revenue; they did not inflate the receivable.

Change the buyer — DIFAL & FCP appear

Sell the same goods interstate (SP → RJ) to an end consumer (BR-CONSUMER). Two things change, both from data: ICMS uses the interstate rate (12%), and because the buyer is a non-contributor on an interstate sale, DIFAL (the rate differential, e.g. 8%) and FCP (e.g. 2%) now fire and add to the receivable. Sell to a business in RJ instead and DIFAL/FCP stay off — the buyer settles ICMS on its own resale. You changed one field (the customer’s profile); the engine did the rest.

Purchases — recovering embedded credits

When you buy, the recoverable embedded taxes (ICMS, PIS, COFINS for Lucro Real) are lifted out of the cost into input-credit assets (a recuperar), leaving the expense net — the mirror of the sales-side deduction. Non-recoverable embedded taxes stay in the cost. Again, driven by the Tax Type’s recoverable flag, not a choice at entry.

If the tax looks wrong, check the chain

1. PIS/COFINS missing? The entity’s Party Tax Profile must carry the right regime (Lucro Real/Presumido) — that’s what those rules match on.
2. DIFAL/FCP firing for a business buyer? Tag that customer as a Contributor, not BR-CONSUMER.
3. Posting error about a missing mapping? An embedded sales tax needs its Sales Deduction GL mapping (Step 8).
4. Wrong ICMS rate? Check both states are set — intra vs inter changes the rate.

Where to go next

1. UK VAT — the simplest walkthrough to compare against.
2. India (GST + TDS) — another multi-component country setup.
3. Tax Calculation Components — how Brazil’s layered bases are built.
4. Tax Seeding Wizard — load Brazil’s rulebook in one click.
5. Understanding Withholding Tax — Brazil’s IRRF withholding side.

Frequently asked questions