Brazil is a civil law country, and its Civil Code (Law 10.406 of January 10, 2002) provides for two traditional civil law forms of not-for-profit private legal entities: associations and foundations. [1]
An association is an organization created by a group of people seeking to achieve a particular goal.
A foundation is an organization created and formed by an endowment. A foundation can be private (created by a private will or a donation) or public (created by law). The public foundation form was added by Law 7596/87 in 1989.
In addition, not-for-profit organizations in Brazil, whether an association or foundation, may qualify for one of five special designations:
Civil Society Organizations for the Public Interest (known as OSCIPs);
Social Organizations (known as OSs);
Public Utility Status;
Social Assistance Registry; and
Social Assistance Beneficent Entity Certification.
Public foundations and private foundations created by the Public Administration are unable to receive the OSCIP designation (Law 9.790/99, Article 2, XI and XII). Special designations are not mandatory but are elective for organizations that other are not-for-profit.
The Federal Constitution exempts educational and social assistance NGOs from taxes at all levels. To be eligible, an educational or social assistance NGO must observe requirements set forth in federal law.
Organizations that do not qualify for constitutional tax exemptions may be eligible to receive some tax benefits at the federal, state, and municipal level.
The income and the corporate tax laws provide donors with select tax benefits. There is no double taxation treaty between Brazil and the United States.
Tax Code - Law 5.172 of October 25, 1966 – Articles 9, 14 and 111 (Portuguese)
Civil Code - Law 10.406 of January 10, 2002 - Title II, Chapter II and III (Portuguese)
Law on Social Assistance Organizations - Law 8.742 of December 8, 1993 (Portuguese) - Legal Framework on Social Assistance Issues modified by Law 9720 of November 30, 1998, Resolution 191 of November 10, 2005 from the National Council of Social Assistance, Resolution 31 of February 24, 1999, Article 3, IV, Legislative Decree no. 27 of November 18, 1966
Legislation on Civil Society Organizations for the Public Interest - Law 9.790 of March 23, 1999 (Portuguese) and Decree 3.100 of June 30, 1999 (Portuguese)
Legislation on Public Foundations - Law 7596/87 (Portuguese), Decree 200/67 of February 25, 1967, modified by Decree 900 of September 29, 1969, Decree 2299 of November 21, 1986, Law 8958/94 of December 20, 1994 (Portuguese), and Law 10.637 of December 30, 2002 (Portuguese)
Law on Social Organizations - Law 9.637/98 (Portuguese) and Decree 5396 of March 21, 1995
Legislation on Public Utility - Law 91 of August 28, 1935 (Portuguese); and Decree 50.517 of May 2, 1961
Legislation on Certification of Social Assistance Beneficent Entity - Law 8.212 of July 24, 1991 (Portuguese); Decree 2.536 of April 6, 1998 modified by Decree 3.504 of June 13, 2000; Decree 4327 of August 8, 2002; Decree 4.381 of September 17, 2002 and Decree 4.499 of December 4, 2002; Law 12.101 of November 27, 2009 (Portuguese)
Law on Public Registries - Law 6.015 of December 31, 1973 added on October 30, 1975 - Title III, Chapter II, Articles 114 to 126 (Portuguese)
Law on Voluntarism – Law 9.068 of February 18, 1998
Law on Crimes Resulting from Racial Prejudice - Law 9.459, May 13, 1997 (Portuguese) which modifies Law 7.716, January 5, 1989
Law on Social Security Financial Contributions - Law 10.833 of December 29, 2003 (Portuguese)
Law on Social Welfare Contribution - Law 8212, July 24, 1991 (Portuguese)
Law on Supporting People with Disabilities and their Social Integration - Law 7.853, October 24, 1989 (Portuguese)
Law on Credit, Exchange, and Insurance Operations Tax - Law 5143, October 20, 1966 (Portuguese)
Law on the National Cultural Program (Rouanet Law) - Law 8313, December 23, 1991 (Portuguese) - Decree 5761, April 27, 2006
Law on Contribution to Sportive Projects - Law 11.438, December 29, 2006 (Portuguese); Decree 6180, August 3, 2007
Law on the National Fund for the Ederly - Law 12.213, January 20, 2010
Law modifying Tax Legislation - Law 9532, December 10, 1997 (Portuguese)
Law on Tax Revenue - Law 9249, December 26, 2005; Law 5172, October 25, 1966 (Portuguese)
Decree on Industrialized Products Tax - Decree 4.544 of December 26, 2002
Decree on Rural Real Estate Tax - Decree 4.382, September 19, 2002
Provisional Measure ("Medida Provisóra") no. 2.113 of April 26, 2001, Article 59 and Law 9249 of December 26, 1995, Article 13, § 2, III (Portuguese)
Normative Instruction on the execution of collaborative agreements - no.1 of January 15, 1997 from the National Treasury Office
1) Association: An association (sometimes referred to as a not-for-profit civil organization) is a self-governed voluntary organization formed for one or more purposes set forth in its founding documents and charter. An association organizes its members’ activities in order to achieve its aims. An association acquires legal personality when its charter is registered in the proper public register office. [Civil Code article 45; Law on Public Registries 6.015/73 §120]
The Constitution of Brazil guarantees the freedom of association. The exception to this general rule is that people may not form a military group or associate for unlawful purposes. [Federal Constitution Ch. 1 Article 5 (XVII)] Therefore, under normal circumstances, an association must merely register its charter in a public register office to obtain legal personality. An association need not seek any other kind of public authority permit to register as a not-for-profit private legal entity.
2) Private Foundation: A private foundation, often referred to simply as a foundation, is a not-for-profit private legal entity with an endowment. According to Brazilian legal doctrine, a foundation is defined as a collection of assets granted legal personality by operative law and devoted to public interest purposes (though, as discussed below, only certain public interest purposes qualify). The foundation's goals are recorded in a written declaration which must be registered with a notary public.
The old Civil Code allowed foundations to pursue any lawful purpose. Currently, foundations are limited to religious, moral, cultural, or assistance purposes. There is a debate over the exclusion of other public interest purposes, such as education, environmental preservation, and research and development.
The Civil Code requires that a foundation have and disclose sufficient assets to achieve its purposes (Civil Code article 63). A foundation is controlled and managed in the manner set forth in its charter by the person or persons appointed by the founder in the letter of establishment.
A foundation is established in Brazil by submitting its letter of establishment, constitutive acts, and charters to the Attorney General’s Office ("Ministério Público"). Upon receiving the Attorney General's approval, the founders have to register their founding documents in the proper public register office (Civil Code articles 62 to 69; Law on Public Registries 6.015/73 §120). Once registered, the Attorney General's Office has oversight authority over a foundation's administration (Civil Code article 66).
3) Public Foundation: A public foundation is a not-for-profit private legal entity created by legislative authorization to undertake public activities not necessarily assigned to the government. Public foundations have independent administrators and boards, as well as their own assets, which may come from the federal government or other sources (Law on Public Foundations 7596/87 §5 (IV)). Public foundations, like their private counterparts, become legal entities through the registration of their constitutive acts in the public register office. Unlike private foundations, however, public foundations are not subject to oversight by the Attorney General's Office (Law on Public Foundations 7596/87, §5 (IV)(3) (Portuguese)).
B. Special Designations
a) Civil Society Organizations for the Public Interest (“Organização da Sociedade Civil de Interesse Público” - OSCIP): The permissible activities to be performed by an OSCIP are found in the 3rd article of Law 9.790/99, which include:
social assistance;
promotion of culture;
historical preservation and cultural heritage;
education;
health care;
nutrition and food security;
environmental protection;
promotion of voluntary work;
promotion of economic and social development;
experimentation with alternative employment and credit systems;
protection of rights;
promotion of citizenship and democracy; and
development of alternative technologies.
An OSCIP may not distribute any surplus revenues (either general or liquid), dividends, bonuses, or assets gained through performance of its activities to any of its members or participants, advisors, directors, employees, or donors. (Law 9.790/99 Article 1, § 1)Therefore, an OSCIP must use all of its assets and income in pursuit of a relevant public purpose.
Until 2003, OSCIPs could not receive tax benefits if they paid their Directors (Law 9.532/97 Article 15, § 3). Under Law 10.637/02 Article 34, however, the governing staff's remuneration is no longer an obstacle to tax benefits. The salaries cannot exceed the limit established for the remuneration of the Federal Executive Power (the president and ministers of Brazil). Of the five types of special designations, only the OSCIP designation allows Directors to be paid a salary.
The law also created a special sort of contract called "Termo de Parceria," governing partnerships between an OSCIP and the government. Through this contract, an OSCIP may receive government funds or other government support to execute projects in the public interest. This contract aims to improve cooperation between government and these organizations, which must always undertake the public interest activities set forth in the law.
b) Social Organizations ("Organizações Sociais" – OS): The title OS can be granted to any not-for-profit private legal entity created to privatize the administration of a public asset (e.g., monuments, museums, transportation, public companies, public universities).
The goal is to facilitate the privatization of public services to not-for-profit institutions. Accordingly, the tasks of these organizations are quite restricted and always depend on a specific concession from the government. The concession of the right to manage a public company or asset is formalized through a legal instrument called the Management Agreement or "Contrato de Gestão" created by Article 5 of Law 9.637/98.
The control of an OS by its founding members is restricted by the Management Agreement, as well as by the structure of the board of directors, called the Administration Council, which always includes members of the government and the community in addition to the founding members.
The government may disqualify or terminate an OS that does not comply with the requirements of the agreement after following a prescribed administrative procedure (Law 9.637/98 Article 16).
c) Public Utility Status ("Declaração de Utilidade Pública" – DUP): The criteria for being qualified as a public utility organization are stringent. To be eligible, the organization must have as its objectives the promotion of education, scientific research, culture or philanthropy and must also:
be properly registered as a legal entity;
be formed in Brazilian territory;
have carried on a public interest activity for more than three years;
not remunerate its directors under any circumstances, or distribute among any of its members or participants, advisors, directors, employees or donors any eventual surplus revenues (either general or liquid), dividends, bonus, and/or assets; and
publish a balance sheet and income statements every year.
(Decree 50.517/61 Article 2)
Further, a not-for-profit legal entity with public utility status must report on its activities annually to the Ministry of Justice. The Ministry of Justice may revoke the public utility status of a not-for-profit entity if the entity ceases to promote its objectives, remunerates its directors or distributes income or assets, or fails to report on its activities to the Ministry of Justice for three consecutive years (Decree 50.517/61 Article 6).
d) Social Assistance Beneficent Entity enrolled in the National Council of Social Assistance (“Entidade Beneficente de Assistência Social inscrita no Conselho Nacional de Assitência Social – CNAS”): This designation is granted to not-for-profit private legal entities that carry out or promote "social assistance," which includes:
providing social assistance to needy families, mothers, children, youth, and people with disabilities;
promoting and developing rights;
promoting citizenship;
combating social inequalities;
enhancing social and popular movements; and
promoting leadership capacity.
(Law 8.742/93, Articles 2 and 3 (Portuguese), regulated by Resolution 191 of November 10, 2005, of the National Council of Social Assistance)
An entity with this designation may apply for government subsidies and some types of tax exemptions on imports (Legislative Decree no. 37 of November 18, 1966).
In addition, according to article 10 of Law 8.742/93, it may enter into special collaborative agreements ("Convênios") with the government to obtain public funding (the Normative Instruction from the National Treasury Office - STN nº 1 of January 15, 1997, rules the execution of such collaborative agreements) . Such organizations cannot pay their Directors.
e)
Social Assistance Beneficent Entity holding the Social Assistance Beneficent Certification (CEBAS)("Entidade Benficente de Assistência Social detentora do Certificado de Entidade Beneficente de Assistência Social"- CEBAS): This designation allows entities to qualify for special tax benefits, such as exemption from required payments of certain fringe benefits and social security taxes.
In order to obtain Social Assistance Beneficent Entity Certification, a not-for-profit legal entity must be considered a charitable social assistance, educational or health organization that carries on activities and/or contributes to programs for:
families, mothers, children, youth, and aid to the elderly;
education and rehabilitation of handicapped people;
assistance to children and youth from troubled homes; and
promotion of education and health assistance without charge.
Under the Law 12.101 of November 27, 2009, an organization that is qualified by the Ministry of Justice as an OSCIP may acquire CEBAS certification if it works in the fields of education, health, or social assistance. To be entitled to this Certification and to be eligible for the social contribution exemption, the not-for-profit legal entity must also fulfill the following requirements:
be properly registered as a legal entity in Brazilian territory for at least 12 months and provide evidence of developing public interest activities during the last fiscal year by the time of application;
be registered with the National Council of Social Assistance (in the case of Social Assistance entities);
be registered with the State or local Council of Social Assistance, according to the entities head office (in the case of entities performing Social Assistane services);
it is no longer necessary for any entity to hold the Public Utility Declaration to obtain CEBAS;
provide evidence that its resources, income, profits and operational results are used only in the national territory and only for advancing its goals;
not remunerate, under any circumstances, its directors, counselors, partners, directly or indirectly, or distribute among any of its members or participants, advisors, directors, employees, or donors any surplus revenues (either general or liquid), dividends, bonus, and/or assets;
not constitute assets of any individual or any organization that is not considered of social assistance;
establish in its charter that in case of dissolution, the remaining entity's assets must be transferred to another not-for-profit organization holding the Social Assistance Beneficent Entity Certification or to a public interest entity with similar aims;
perform its activities without discriminating against anyone under any circumstances;
provide evidence that it offered at least 60% (sixty percent) of its services to the Public Health System (SUS) (applicable to entities rendering health services); and
provide evidence that at least 20% (twenty percent) of annual income is destined to render free educational services for the population in general (applicable to entities rendering educational services).
According to article 21 of Law 12.101/09, the National Council of Social Services no longer bears exclusive responsibility for concessions and renewals of the CEBAS certificate. The Ministries of Health, Education and Social Development will also analyze and make decisions on CEBAS eligibility for those not-for-profits whose activities fall under their purview.
The certificate's validity will be further regulated and may vary from 1 to 5 years, depending on specific rules that will be established applicable to the areas herein mentioned. The development of other relevant procedures, including the revocation of the CEBAS Certification, is pending.
C. The National Registry of Entities Qualified by the Ministry of Justice (CNEs/MJ)
In January 2007, the National System of Entities Qualified by the Ministry of Justice (CNEs/MJ) was created by Governmental Decree. Under the Decree, all organizations qualified as OSCIP or holding a Public Utility Status and all other foreign organizations authorized to conduct activities in Brazil must register with the Ministry of Justice and annually render accounts.
The CNEs/MJ publicizes the financial accounts and reports on activities carried out during the year by registered entities. These reports can be presented and disseminated electronically.
Under the new system, OSCIPs that render accounts once a year may obtain a “Certificate of Regularity,” which is necessary for the execution of “Termos de Parceria” with the government and to benfit from fiscal incentives.
Brazilian laws contain severe prohibitions against inurement in tax-exempt not-for- profit entities and entities with special designations.
Organizations with tax-exempt status conferred by the Brazilian Constitution (discussed below) shall not distribute any assets or profits among their members (National Tax Code, Article 14). The Federal Constitution and the Brazilian tax code (which regulates the tax-exempt status conferred by the Brazilian Constitution) do not, however, prohibit the remuneration of board members and governors. On the other hand, articles 12 and 15 of Law 9.532/97 state that in order to benefit from tax-exempt status, not-for-profit organizations must not remunerate board members.
Law 9.532/97 holds an inferior normative status when compared to the Federal Constitution and the Tax Code; according to local experts, it therefore should not have created new requirements for not-for-profits benefitting from constitutional tax-exempt status. Because of controversies arising from this legal provision, several not-for-profits have had to go to court to obtain their right to constitutional tax-exempt status under article 14 of the Brazilian Tax Code.
Organizations qualified by the Ministry of Justice as OSCIPs are not affected by this issue since there is a specific provision in §4 "VI", of Law 9.790/99 that allows such entities to remunerate their directors for their board activities and for leading the organization.
Tax-exempt organizations must devote all of their funds to the pursuit of their own social objectives (Law No. 9.532/97, article 12 (Portuguese)).
In addition, laws granting special designations – such as the Law on Civil Society Organizations and the Law on Social Organizations – prohibit inurement of personal benefit to private individuals or for-profit entities (For example, Law 9.790, Art (1)(1) and Law 9.637/98, Art. 2(I)(h) respectively). In general, the organization bylaws must state that it shall not, under any circumstances, remunerate any directors or distribute among any of its members or participants, advisors, employees or donors any surplus revenues (both general and liquid), dividends, bonuses, and/or assets or equity (Law 9.790/99 Art. 1(1)). Fringe benefits are also prohibited.
Under an opinion from the Legal Department of the Ministry of Social Welfare, however, a director of an organization with any type of special designation may receive reasonable remuneration for any additional services, beyond those of a director (Legal Department decision 639/96 - D.O.U. October 10, 1996).
Managers and employees of organizations holding any special designation may be paid reasonable salaries, determined according to the market average.
A not-for-profit entity without tax-exempt status and without any special designation is not subject to limitations on inurement.
1) Associations: Founders, members and donors lose all property rights to assets granted to an association once they are registered under the association’s name, except for the possibility to recover the donated assets in case of the association’s dissolution (Article 61 of the new Brazilian Civil Code).
2) Foundations: In Brazil the foundation's assets are partly integrated into the legal entity itself and so no founder, member or donor can retain a proprietary interest on assets granted to foundations.
3) Special Designations: Founders and members of entities holding special designations and also donors cannot retain a proprietary interest in assets they contribute to such organizations.
An association may be dissolved: (i) by decision of its members, (ii) according to provisions set forth in its constitutive acts, or (iii) involuntarily, by judicial order, according to a due process of law (Brazilian Federal Constitution, Article 5 (XIX)). An association's bylaws may establish that in case of its dissolution, all members can get back the funds given to the organization. According to article 61 of the Civil Code, any additional assets remaining upon dissolution must be transferred to a not-for-profit organization named in its bylaws or, in case of omission, by resolution of the association's members, to a municipal, state, or federal insitution with similar objectives.
2) Foundations:
A foundation may be terminated if its purposes become illicit or impossible to achieve or if it reaches the end of its term, if stipulated in its constitutive acts. Any assets remaining upon dissolution must be transferred to a not-for-profit organization with similar objectives or to a government entity (Civil Code, Article 69).
3) Special Designations:
If any organization with special designation is dissolved or has its designation revoked, all assets acquired from the government must be transferred to another organization with the same designation and similar aims. These provisions must be included in the organization's bylaws (for example, see Law 9.790/99 § 4 (IV), Law 9.637/98 §2 (I) (j) (Portuguese) and Resolution no. 31/99, article 3, IV, of the National Council of Social Assistance).
In addition, the assets managed by Social Organizations under the Management Agreement are public property and must revert to public administration at the time of the organization’s dissolution.
Associations. Associations are generally permitted to engage in any lawful activities, restricted only by their charters, under the constitutional freedom of association (Brazilian Constitution, Article 5, XVII), except association for paramilitary purposes.
Foundations. Foundations by definition must serve public benefit or public interest purposes. Their activities are restricted to those set forth in their constitutive documents. According to the new Civil Code, the activities of foundations are now limited to religious, moral, cultural and assistance objectives (Law 10.406, Art. 62).
Special Designations. Organizations granted special designations are permitted to engage in certain prescribed activities:
a) Civil Society Organization for the Public Interest (OSCIP):
promote social assistance programs;
promote cultural activities and the protection and maintenance of historic and artistic assets;
promote free education;
promote free health care;
undertake food aid programs and nutritional education programs;
promote sustainable development and environmental protection programs;
promote volunteerism programs;
promote social and economic development and fight poverty;
carry on not-for-profit experiments regarding new patterns for social production activities and alternatives for the production, commerce, employment, and credit systems;
promote the creation and consolidation of legal rights;
promote legal services;
promote ethics, peace, citizenship, democracy, human rights and other universal values; and
study, research, and develop new technologies and disseminate scientific and technical knowledge regarding the activities mentioned herein.
b) Social Organizations:
Promote education;
Promote scientific research;
Promote technological development;
Promote environmental protection and preservation; and
Promote cultural activities and health care.
c) Public Utility Status:
Promote education and scientific research programs; and
Carry on scientific research, cultural activities, and non-discriminatory philanthropic activities.
d) Social Assistance Registry:
Provide social assistance to needy families, mothers, children, youth, and people with disabilities;
Promote and develop rights;
Promote citizenship;
Address social differences;
Enhance social and popular movements; and
Provide leadership capacity building.
e) Social Assistance Beneficent Entity Certification:
Same as the activities listed under Social Assistance Beneficent Entity.
In general, not-for-profit organizations in Brazil may pursue economic activities. They can invest in the stock market, participate in mergers and acquisitions and acquire control of companies. However, there are relevant restrictions. First, economic activities cannot constitute the primary purpose of the organization. Second, no profits or income of any kind may be distributed to employees, directors, managers, collaborators or members under any circumstances. Instead, any surplus must be used to carry out the social purposes of the organization. Further, the revenues resulting from such activities must be fully applied in Brazil to fulfill the organization’s purposes (Brazilian Tax Code, Article 14, II). The organization's bylaws may impose additional restrictions on its economic activities.
The new Civil Code defines associations as entities organized for non-economic purposes instead of not-for-profit. It is generally thought, however, that the two terms are synonymous.
Brazilian law generally imposes no restrictions on the ability of foundations and associations to engage in legislative or political activities. These entities may freely support candidates for public office as well as any kind of legislation. Any restriction on political activities would be contained in the organization's governing documents.
The only explicit limit concerns Organizations of Civil Society for the Public Interest, which may not take part in political campaigns under any circumstances or support political parties or politicians in any way. (Law 9.790/99, article 16) These restrictions cover political party activity and the nomination of candidates for parliamentary and local governmental elections at the county level.
The law does not expressly prohibit political or legislative activities by public foundations or social organizations.
Brazilian law imposes criminal penalties against anyone who denies or restricts a student's admission to a public or a private educational institution on the basis of race or disability (Article 6 of Federal Law 7.716/89 (Portuguese) altered by Law 9.459/97 (Portuguese) and Law 7.853/89 Article 8 (Portuguese)). In addition, an organization holding the Social Assistance Beneficent Entity Certification may not discriminate against any person under any circumstances (Article 3, § 1 of Decree 2536/98).
In July 2008 Brazil ratified the UN Convention on the Rights of People with Disabilities, with a qualified quorum necessary to be considered a constitutional rule, according to the Constitutional Amendment 45/04. Thus, all internal legislation regarding people with disabilities issued from now on shall respect the guidelines established by the Convention.
In general, no restriction exists on the control of not-for-profit organizations by other organizations or persons. It is possible that a Brazilian not-for-profit may be controlled by a foreign entity (which will lead to IRS scrutiny) or by an American grantor charity (which requires that the charity specifically so provide in the Affidavit). In such cases, at least one of the persons responsible for the control of the organization’s activities must be Brazilian or a Brazilian proxy must be nominated.
In order to understand the tax benefits available to not-for-profit organizations, it is necessary to have an overview of the Brazilian tax system. The power to create and collect taxes ("tributos") is shared by the Federal Government, the States, the Federal District, and the Municipalities, and is defined and regulated by the Federal Constitution, the Brazilian Tax Code, and several other statutes. The expression "tributos" includes duties (“impostos”), public service fees (“taxas”), social contributions (“contribuição social”), improvement charges (“contribuições de melhoria”), and economic domain intervention contributions (“contribuição de intervenção no domínio econômico”).
A. Tax Benefits for Not-for-Profit Private Legal Entities
1. Constitutional Tax Exemption
In Brazil, tax benefits depend on the nature of the not-for-profit organization's activities rather than on the type of the organization itself. This means that the legal form of a not-for-profit is irrelevant in determining its tax benefits.
Article 150 (VI)(c) of the Brazilian Constitution stipulates that the federal government, States, Federal District and cities are not allowed to tax educational and social assistance not-for-profit private legal entities. This tax exemption applies only to those assets, income, and services related to the essential activities of the entity. In addition, the article provides that statutes may specify criteria that educational and social assistance organizations must satisfy in order to obtain the tax benefit.
Article 14 of the National Tax Code stipulates that to obtain tax exemption, an educational or social assistance entity:
shall not distribute its assets or profits among its members;
shall keep accounting books in order to promote transparency of its activities and accounts; and
shall limit the use of its resources to the Brazilian territory and to maintaining and developing its aims.
Other laws impose additional conditions. In order for an educational or social assistance organization to be eligible for tax exemption, it must also:
not remunerate in any way its board members or governors (managers and staff can be remunerated);
invest all its funds in the maintenance and development of its objectives;
keep full records of income and expenses using proper accounting procedures;
keep records for at least five years to demonstrate the origin of revenues, the nature of expenses, and any other acts and transactions that may change its net worth;
submit income tax statements to the Federal Revenue Office annually;
make sure that in the event of merger, acquisition, liquidation, or dissolution, its assets are transferred to another similar organization that is also eligible for exemption; and
comply with additional requirements set out in statutes related to the operation of tax-exempt organizations.
These criteria are not considered restrictions on any constitutional protections, but means of promoting the public interest and promoting the transparency of organizations granted tax benefits.
Provided that the foregoing requirements are met, the educational or social assistance entity needs merely to declare that it is eligible for the exemption before Revenue Service Authorities (“Receita Federal").
2. Federal Tax Exemptions
To be granted other tax benefits not stipulated in the Federal Constitution, a not-for-profit entity must fulfill several requirements.
The following Federal Laws concerning taxes and duties (“impostos”) are applicable to not-for-profit organizations. Unless otherwise specified, the requirements apply to all types of not-for-profit entities:
1) Revenue Tax ("Imposto de Renda" – IRPJ) - Full exemption from payment of the revenue tax; however, the entities granted this benefit must fully complete the income tax form every year. Therefore, they must comply with the requirements of article 12, items (i) to (v), of Law 9532/97 cited above (Article 15 of Law 9532/97; Federal Constitution, Article 150(VI)(c); Tax Code Law 3470/58 §113 (Portuguese); Law 5172/66, §§9 (IV)(c) and 14 (I-III) (Portuguese); 1999 Income Tax Law (RIR/99) §808 (3)).
2) Social Contribution on Profit ("Contribuição Social Sobre o Lucro") – Full exemption from payment of the revenue tax; however, the entities granted this benefit must fully complete the income tax form every year. Therefore, they must comply with the requirements of article 12, items (i) to (v), of Law 9532/97 cited above (Article 15 of Law 9532/97 (Portuguese)).
3) Social Integration Program Contribution ("Programa de Integração Social" - PIS) - Since 2003, education and social assistance entities must collect and pay a Social Integration Program Contribution of 1% of all employees' salaries. Other not-for-profit entities must pay 0.65% of their receipts (Federal Constitution §195(I)(7); Law 10.637/02 (Portuguese)).
4) Social Security Financial Contribution ("Contribuição para o Financiamento da Seguridade Social" - COFINS) – Full payment exemption for educational and social assistance entities. Since 2004, other not-for-profit entities must collect and pay 7.6% of their receipts (Federal Constitution §195(I)(7); Law 10.833/03 (Portuguese)).
5) Social Welfare Contribution ("Contribuição Previdenciária" - INSS) - Full exemption to social assistance organizations that are granted both federal Public Utility Status and Social Assistance Beneficent Entity Certification (Federal Constitution §195(I)(7); Law 8.212/91 Art. 55 (Portuguese)).
6) Work Accident Fund Contribution ("Contribuição para Acidente do Trabalho") - Full exemption to social assistance organizations that are granted both federal Public Utility Status and Social Assistance Beneficent Entity Certification (Federal Constitution §195(I)(7); Law 8.212/91 Art. 55 (Portuguese)).
7) Importation Tax ("Imposto de Importação" - II) - According to §2(I)(a) of Law 8032/90, social assistance and educational private legal entities are given special treatment on payment of the Importation Tax on products imported for their activities.
8) Industrialized Products Tax ("Imposto de Produtos Industrializados" - IPI) – Social assistance and educational entities' products are fully exempted from IPI, since they are for their own use or distributed to their students freely (Decree 4544/2002 (Portuguese)).
9) Credit, Exchange and Insurance Operations Tax ("Imposto sobre operações de crédito, câmbio e seguro" - IOC e "Imposto sobre Operações Financeiras" - IOF) - There are no exemptions from payment of the Credit, Exchange and Insurance Operations Tax or the Financial Operations (capital gains) Tax (Law 5.143/66 (Portuguese)).
10) Rural Real Estate Tax ("Imposto Territorial Rural" - ITR) –
Full exemption from payment of the Rural Real Estate Tax if the amount exempted is used to pursue the goal of the entity (Federal Constitution §150(VI)(c); Decree 4.382/02, Article 3).
B. State and Municipal Tax Exemptions
As long as Federal Constitutional principles are observed, state and municipal governments have the right to grant not-for-profit private legal entities exemptions from state and municipal taxes.
C. Incentives for Philanthropy
1.Contributions to not-for-profit private legal entities granted Public Utility Status or OSCIP special designations.
Corporate contributions to organizations granted federal Public Utility Status or Civil Society Organization for the Public Interest designations may be deducted up to 2% of the corporation's operating profit ("lucro operacional") before the corporation calculates its revenue tax liability (Law 9.249/95 Article 13(2) (Portuguese)).
Only corporations may claim tax benefits for such contributions. Since 1996, individuals have not been eligible for tax benefits for contributions to not-for-profit organizations.
2. Contributions to Cultural Projects.
Law no. 8.313/91 (“Lei Rouanet”) created the National Cultural Programme (Pronac), which allows projects approved by the Ministry of Culture to receive sponsorships and donations from companies and individuals, which may totally or partially deduct the amount invested from their income tax.
Under the law, the treatment of sponsorships differs from that of donations. [2] A company may deduct 40% of the value of its donation and 30% of the sponsorship from its income tax. The total amount of the deduction may not exceed 4% of the total tax liability (Law 8.313/91 Article 26 (Portuguese) and Law 9.532/97 (Portuguese)).
An individual may deduct 80% of the value of her/his donation and 60% of her/his sponsorship from her/his tax income. The total amount of the deduction may not exceed 6% of the person’s total tax liability (Law 8.313/91 Article 26 (Portuguese) and Law 9.532/97 (Portuguese)).
In addition, individuals and companies may deduct 100% of the value of the donation or sponsorship if they have supported certain activities such as:
theater;
books on arts, literature and humanities;
instrumental and erudite music;
arts exhibitions; and
libraries and museums.
Decree 5.761/06 (Portuguese) establishes mechanisms to promote the “democratization” of certain programs, projects, and activities in order to provide:
prices more affordable for the population;
accessible conditions for aged and disabled persons;
the distribution of goods free of charge for beneficiaries previously identified by the Ministry of Culture; and
the development of diffusion strategies in order to broaden the access to incentivized programs, projects, and activities. (Decree 5.761/06, Article 27, I a IV)
Many states have laws concerning contributions for cultural projects and tax exemptions of ICMS for donors and sponsors. [3] Some examples include Bahia - Law 7.015/96; Ceará - Law 12.464/95; Rio de Janeiro - Decree nº 22.486/86; Pernambuco, Law nº 11.005/93 and nº 11.236/95 and São Paulo - Law nº 12.268/2006. Many municipal governments also have laws that provide deductions for cultural activities. Examples include Rio de Janeiro - Municipal Law nº 1.940/92 and São Paulo - Municipal Law nº 10.923/90.
3.Contributions to not-for-profit private legal entities certified by the Council of Public Policies for Children and Youth.
The Council of Public Policies for Children and Youth has a Fund composed of revenue of the government as well as corporate and individual donations. The fund is used on Public Policies for Children and Youth and it can be distributed to certified organizations. Donations to the Fund are deductible as follows:
corporate donations - Full deduction of the donation up to a limit of 1% of the income tax due; and
individual donations - Full deduction of the donation up to a limit of 6% of the income tax due.
4. Contributions to Sports Projects
Under Law 11.438/06 ruled by Decree nº 6.180/07 (“Lei do Incentivo ao Esporte”), projects approved by the Ministry of Sports can receive sponsorships and donations from companies and individuals. All projects must be approved by a Technical Commission from the Ministry before receiving donations or sponsorships.
Individuals may - totally or partially - deduct the amount invested from their income tax up to a limit of 6%, and companies may deduct up to a limit of 1%. Donations and sponsorships that directly or indirectly benefit companies or individuals that maintain relations with the donor or the respective sponsor may not be deductible.
Projects combining education and sports shall involve at least 50% of students from public schools of the surrounding area where they are held.
Donations include:
free transfer of money, goods and services for projects (though not for publicity) concerning sporting and “para-sporting” activities; and
free distribution of tickets to sporting and “para-sporting” events by companies, to their employees or to needy communities.
The maximum deductible value will be annually fixed by the Executive Power, based on applicable corporate and individual tax rates.
5. Contributions to the National Fund for the Elderly
Law 12.213/10 established the National Fund for the Elderly. The fund will subsidize programs and activities designed to preserve the social rights of the elderly and create conditions to promote their autonomy, integration and effective participation in society.
Donations to this Fund are deductible as follows:
Corporate donations to the National, State, or Municipal Funds - full deduction of the amount donated through a deduction as "operating expenses" is prohibited;
Individual donations - the contributions cannot be deducted from income tax due.
Under the Law, the sum of deductions derived from donations made to Elderly Funds and to private not-for-profit legal entities certified by the Council of Public Policies for Children and Youth cannot exceed 1% (one percent) of income tax due.
D. Double Tax Treaty
There is no double tax treaty between Brazil and the United States.
Figueirêdo Lopes, Golfieri, Toledo e Storto Advogados
Rua Abílio Soares, n° 1.017, casa 08 - Paraíso
São Paulo - SP - Brasil - CEP 04005-003
Tel/Fax: (55) (11) 3884 3416 or 3884 4996
Footnotes
[1] In 2003, Law 10.825 revised the Civil Code to include religious organizations as a new type of organization (Law 10.825/2003). According to this Law, every religious organization is free to establish, organize, and define its internal structure. Moreover, the State cannot deny its registration and existence. This law also states that the Chapter concerning for-profit organizations also applies in part to associations.
[2] Decree 5.761/06 defines a “donation” as the definitive and irreversible transfer of money or goods to the proponent - either a juridical or natural person - whose cultural program, project, or action has been approved by the Ministry of Culture. “Cultural Sponsorship” is defined as either the definitive and irreversible transfer of money or services - with a promotional purpose- or the payment of expenses and the use of realty or goods of the sponsor, without the transfer of property, for the accomplishment of a cultural program, project or action which has been approved by the Ministry of Culture (Decree 5.761/06, Article 4, IV e V).
[3] The Tax on the Circulation of Goods and Transportation and Communication Services ("Imposto sobre Circulação de Mercadorias e Prestação de Serviços" - ICMS) is a state tax which is covered by the Federal Constitution and by a specific national law, but many of its provisions are determined by Interstate Tax Conventions. The Federal Constitution exempts educational and social assistance not-for-profit organizations from the ICMS. Other not-for-profit organizations can be exempted from the referred tax as long as their state laws grant this benefit (Federal Constitution Article 155(II); (§2) (XII) (g); Complementary Law 87/96, and specific state laws).
