What Is COFINS?
COFINS is a federal social contribution in Brazil that is levied on the gross revenue of businesses. The tax is designed to fund social security programs, including pensions, public healthcare, and social assistance. Every company operating under Brazilian tax law must understand COFINS because it represents a significant cost and compliance obligation. The tax is managed by the Federal Revenue of Brazil and must be calculated and paid monthly. COFINS is often discussed together with PIS (Programa de Integração Social) because they share a similar collection structure and are sometimes combined into a single rate. However, COFINS has its own rules, exemptions, and calculation methods depending on the company’s tax regime. The two main regimes are the non-cumulative regime, which is used by companies taxed under actual profit, and the cumulative regime, which applies to companies under deemed profit. Each regime has a different rate and set of credits that can be offset. Understanding these distinctions is essential for proper compliance and tax planning.
COFINS Tax Regimes and Rates
The rate of COFINS depends on the tax regime adopted by the company. Brazilian law allows companies to choose between the actual profit regime and the deemed profit regime, subject to certain conditions. Under the actual profit regime, also known as lucro real, the company pays COFINS on a non-cumulative basis. This means the company can take credits for COFINS paid on inputs used in its production or resale. The non-cumulative COFINS rate is 7.6%, and when combined with PIS at 1.65%, the total combined rate is 9.25%. In contrast, the deemed profit regime, or lucro presumido, uses the cumulative method, which does not allow credits for inputs. The cumulative COFINS rate is 3%, and the combined PIS and COFINS rate is 3.65%. Companies that are not required to use the actual profit regime often opt for deemed profit to simplify their tax calculation, even though the effective rate may be lower for businesses with high input costs.
COFINS on Imports
When goods are imported into Brazil, COFINS is also levied at the border. The import rate is higher than the domestic rate. For imported goods, COFINS is charged at 9.65%, and PIS import is charged at 2.1%, making the total combined import rate 11.75%. This tax is part of the cost of importing and must be paid before clearance. Importers must be aware that these rates apply to the customs value plus any applicable duties and charges. The COFINS import tax is not creditable in the same way as domestic COFINS under the non-cumulative regime, but specific rules allow credits for importers who are in the non-cumulative system. The purpose of the higher import rate is to protect domestic industry and ensure that imported goods bear a similar tax burden to locally produced goods.
Exemptions from COFINS
Brazilian legislation provides several exemptions from COFINS. The most important exemption is for exports of goods and services abroad. Export revenues are not subject to COFINS, which encourages international trade. Additionally, sales made to commercial exporters for the purpose of export are also exempt. Non-profit entities such as religious organizations, political parties, trade unions, and philanthropic institutions are exempt from COFINS on their revenues, provided they meet specific legal requirements. Other exemptions apply to certain agricultural products, educational services, and medical supplies. Companies operating in free trade zones may also benefit from reduced rates or full exemptions. Understanding these exemptions is critical for businesses that engage in export or operate as non-profits, as they can significantly reduce the tax burden. A list of common exemptions includes:
- Export of goods to foreign markets
- Sales to companies that will export the goods
- Income from charitable, religious, and political activities
- Revenues of trade unions and professional councils
- Certain agricultural and livestock products
- Services provided in specific free trade zones
Each exemption has specific conditions and documentary requirements. Companies should consult with a tax advisor to ensure they qualify and maintain proper records.
Table: COFINS Rates Overview
The following table summarizes the main COFINS rates for different scenarios.
| Situation | COFINS Rate | Combined PIS + COFINS Rate |
|---|---|---|
| Non-cumulative (actual profit) domestic | 7.6% | 9.25% |
| Cumulative (deemed profit) domestic | 3% | 3.65% |
| Import of goods | 9.65% | 11.75% |
Compliance: Payment Deadlines and Procedures
COFINS must be paid monthly. The deadline is the last working day of the fortnight following the reference month. For example, if the revenue is earned in January, the tax is due by the last business day of the first half of February, though precise dates are published annually by the tax authority. Companies need to calculate the amount due based on their total gross revenue, minus any allowable deductions and credits, and then submit a payment via a specific federal tax form. Failure to pay on time results in penalties and interest. Additionally, companies must file periodic declarations, such as the DCTF (Debts and Credits of Federal Taxes), which report the calculated COFINS and confirm payments. Accurate recordkeeping of all sales, purchases, and credits is essential to support the calculation and to avoid audits. Many businesses use specialized accounting software to manage these obligations.
The Future: Replacement of COFINS by CBS
Brazil is undergoing a major tax reform that will simplify its complex consumption tax system. As part of this reform, COFINS and PIS will be replaced by a new tax called CBS (Contribuição sobre Bens e Serviços). The CBS is expected to be tested in 2026 and fully implemented by 2027. The new tax will have a uniform rate and will apply to a broad base of goods and services, eliminating many of the current exemptions and special regimes. The aim is to reduce litigation, improve compliance, and make the Brazilian tax system more competitive internationally. For businesses currently dealing with COFINS, this transition will require significant adaptation. Companies should begin preparing now by reviewing their current tax structures and considering the impact of the change. For more details, you can read about the reform from DLA Piper’s analysis. Additional background on the current COFINS system is available on Wikipedia.
Conclusion
COFINS remains a critical tax for any business operating in Brazil. Understanding the different rates under actual profit and deemed profit regimes, the higher import rates, and the available exemptions is essential for accurate tax filing and cost control. Compliance with monthly payment deadlines and reporting requirements is mandatory to avoid penalties. With the upcoming transition to CBS, companies need to stay informed and proactive. Working with qualified tax professionals is highly recommended to navigate both current obligations and future changes.
References
Wikipedia (Portuguese). Contribuição para o Financiamento da Seguridade Social. Available at: https://pt.wikipedia.org/wiki/Contribui%C3%A7%C3%A3o_para_o_Financiamento_da_Seguridade_Social. Accessed 2025.
KPMG. Brazil 2017 Tax Facts. Available at: https://assets.kpmg.com/content/dam/kpmg/es/pdf/2017/08/Brasil%202017.pdf. Accessed 2025.
Laws of Brazil. Tax and Customs: PIS and COFINS. Available at: https://lawsofbrazil.com/tax-and-customs/. Accessed 2025.
DLA Piper. Global Expansion Tax: Brazil. Available at: https://intelligence.dlapiper.com/global-expansion-tax/countries/brazil/02-taxable-income.html. Accessed 2025.
International Tax Review. Brazil Takes Steps to Clarify Effect of PIS/COFINS on Exports. Available at: https://www.internationaltaxreview.com/article/2a68rfy5bw2ycq1wn6af9/brazil-takes-steps-to-clarify-effect-of-pis-cofins-on-exports. Accessed 2025.
The Brazil Business. COFINS for Dummies. Available at: https://thebrazilbusiness.com/article/cofins-for-dummies. Accessed 2025.
