PIS and COFINS in Brazil are two federal social contributions charged on the gross revenue of nearly every business operating in the country. Combined, they run 3.65% under the cumulative regime and 9.25% under the non-cumulative regime, with the regime determined by how the company calculates corporate income tax. The cumulative rate is lower but allows no credits; the higher non-cumulative rate is offset by credits on qualifying inputs. Both contributions are scheduled to be replaced by a new federal tax called CBS starting in 2027.
Who Pays and Under Which Regime
Every legal entity headquartered in Brazil owes PIS and COFINS on gross revenue, whether it operates as a corporation, limited liability company, or individual enterprise. The taxable base covers income from selling goods, providing services, and other core activities. Law 10.637/2002 governs non-cumulative PIS, and Law 10.833/2003 does the same for COFINS.1Presidência da República. Lei 10637, de 30 de Dezembro de 20022Presidência da República. Lei 10833, de 29 de Dezembro de 2003
The regime a company falls into follows its corporate income tax method. Businesses with annual gross revenue above BRL 78 million must use Lucro Real (actual profit), which places them in the non-cumulative regime. Companies below that threshold can elect Lucro Presumido (presumed profit), which locks them into the cumulative regime. Financial institutions, telecom companies, and cooperatives follow the cumulative method regardless of size.
Companies enrolled in Simples Nacional are a separate case. They do not calculate PIS and COFINS on their own. Both contributions are bundled into the single monthly Simples Nacional payment that also covers other federal, state, and municipal taxes. Simples Nacional has its own revenue ceiling and eligibility rules.
The Cumulative Regime
Businesses on Lucro Presumido pay PIS at 0.65% and COFINS at 3%, for a combined 3.65% applied directly to gross revenue each month. No credits are allowed. The full amount hits the top line before any deductions for cost of goods, raw materials, or service inputs.
The tradeoff is simplicity. A company with R$500,000 in monthly revenue owes R$18,250 in PIS/COFINS. There is no input invoice tracking, no credit reconciliation, and no dispute with the Federal Revenue over which expenses qualify. Service providers and trading companies with healthy margins often prefer this method because the administrative savings outweigh the credits they would earn under the non-cumulative regime.
Once a business commits to Lucro Presumido for a given calendar year, it cannot switch mid-year. As revenue climbs toward the BRL 78 million threshold, staying cumulative may cost more in tax than it saves in compliance overhead.
The Non-Cumulative Regime and Credits
Companies on Lucro Real pay PIS at 1.65% and COFINS at 7.6%, a combined 9.25% on gross revenue. The higher headline rate is offset by credits on costs tied to production or service delivery.2Presidência da República. Lei 10833, de 29 de Dezembro de 2003
Law 10.833/2003 sets out the COFINS credit categories, and Law 10.637/2002 mirrors them for PIS. Eligible credits include:2Presidência da República. Lei 10833, de 29 de Dezembro de 2003
- Goods purchased for resale.
- Raw materials, components, fuels, and lubricants used in manufacturing or service delivery.
- Electricity and thermal energy consumed at the company’s facilities.
- Rent paid to other legal entities for buildings, machinery, and equipment used in operations.
- Leasing installments on equipment and vehicles, excluding payments made to Simples Nacional companies.
- Fixed assets acquired for production or service delivery.
- Construction or improvements on owned or third-party properties used in the business.
- Returned goods where the original sale was already taxed.
- Freight and storage costs when the seller bears the expense.
- Acquired intangibles used in producing goods or providing services.
The net calculation applies 9.25% to gross revenue for the month, then subtracts credits for qualifying inputs. The objective is to tax only the value added at each production stage, not the full price at every step.
Credit claims are where most compliance risk sits. The Federal Revenue scrutinizes them closely, and companies must keep detailed invoices proving each input is genuinely tied to revenue-generating activity. Aggressive claims that the authority later rejects trigger an assessment penalty of 75% of the shortfall. If the authority finds fraud or deliberate concealment, that penalty rises to 150%.
Excluding ICMS From the Calculation Base
In 2021, Brazil’s Supreme Federal Court (STF) finalized its decision that ICMS, the state-level value-added tax, must be excluded from the gross revenue figure used to calculate PIS and COFINS. The reasoning was that ICMS collected on sales invoices passes through the company to the state treasury and was never true revenue.
The court specified that the ICMS to be excluded is the amount shown on the sales invoice, not the net figure the company actually remits after applying its own ICMS credits. The invoice amount is typically higher, so the reduction of the PIS/COFINS base is larger.
Recovery of past overpayments depends on filing timing. Companies that filed lawsuits before March 15, 2017 can recover overpayments from the five years preceding their filing date. Those who filed later, or never filed, can only recover amounts paid from March 15, 2017 onward. Any company still calculating PIS/COFINS without excluding ICMS is overpaying every month.
Imports, Monophasic Products, and Exports
Imports carry a separate layer of PIS and COFINS under Law 10.865/2004. Imported goods are taxed at PIS 2.1% and COFINS 9.65%, a combined 11.75% on customs value. Imported services are taxed at PIS 1.65% and COFINS 7.6% on the amount paid or remitted abroad before income tax withholding, plus municipal services tax (ISS) and the contributions themselves.3Presidência da República. Lei 10865, de 30 de Abril de 2004 Pharmaceuticals, cosmetics, perfumes, and some machinery and vehicles carry surcharges above the standard rates, and an additional 1% COFINS applies to specific goods listed in the legislation. Non-cumulative regime companies can generally claim credits for import contributions paid.
Some sectors use monophasic taxation, which concentrates the entire PIS/COFINS burden at one point in the supply chain. Manufacturers or importers pay a significantly higher combined rate upfront, and downstream wholesalers and retailers apply a zero rate on those products. The pharmaceutical industry, automotive parts sector, and fuel distribution are the common examples. Retailers selling monophasic products need to identify them correctly so they do not pay tax that was already collected upstream.
Exports get different treatment. Goods and services sold to foreign buyers are generally exempt from both contributions, and exporters can still claim credits on the inputs used to produce those exported goods. That credit retention is a deliberate policy to keep Brazilian products competitive internationally.
Withholding Between Legal Entities
In certain service transactions between two legal entities, the buyer must withhold PIS and COFINS from the payment and remit them to the Federal Revenue. The withholding rates mirror the cumulative regime: 0.65% for PIS and 3% for COFINS. The applicable services are set out in Law 10.833/2003 and related regulations.
The buyer generates separate DARF vouchers for each withheld contribution. The service provider records the full invoice value as income and offsets the withheld amounts against its own PIS/COFINS liability. Simples Nacional companies are exempt from withholding on both sides of the transaction. If the buyer fails to withhold, it becomes jointly liable for the unpaid amount.
Filing and Payment
Every company subject to PIS and COFINS must file the EFD-Contribuições, a digital tax bookkeeping file submitted to the Federal Revenue’s SPED system. This filing breaks down transactions, credits claimed, and final calculations for the period. The Federal Revenue cross-references the EFD-Contribuições against electronic invoices and other filings, and discrepancies are a common audit trigger.
Payment is made through a DARF (Documento de Arrecadação de Receitas Federais), generated separately for PIS and COFINS. The deadline is the 25th day of the month following the taxable event. If the 25th falls on a weekend or holiday, payment moves to the preceding business day. Both filing and payment are handled through the Federal Revenue’s e-CAC portal, which issues electronic receipts that serve as proof of compliance.
Penalties for Late Payment and Audit Adjustments
Missing a payment deadline triggers an automatic daily fine of 0.33% of the amount owed, capped at 20% once it accumulates. Interest accrues monthly at the SELIC rate from the month after the due date until the month before payment, plus an additional 1% in the month of actual payment. SELIC has fluctuated between roughly 2% and 13.75% in recent years, so the interest alone can be substantial.
Assessment penalties are heavier. When the Federal Revenue audits a company and determines that PIS/COFINS was underpaid due to incorrect credit claims, unreported revenue, or calculation errors, the standard fine is 75% of the unpaid amount. Fraud, willful concealment, or simulated transactions double the fine to 150%. Getting credits right the first time matters far more than fixing them after an audit notice arrives.
Replacement by CBS Starting in 2027
Complementary Law 214/2025 sets up the replacement of PIS and COFINS by a new federal contribution called CBS (Contribuição sobre Bens e Serviços). The transition began in 2026 and completes by 2033, creating a dual value-added tax system with CBS at the federal level and IBS at the state and municipal levels.
The 2026 calendar year is a test phase. CBS applies at 0.9% and IBS at 0.1%, but companies deduct those amounts from their existing PIS/COFINS obligations. The practical impact during 2026 is administrative rather than financial: ERP systems, electronic invoicing, and compliance workflows need to handle the new tax codes alongside the current ones.
The real shift comes in 2027, when CBS begins at its full rate and PIS and COFINS are abolished. From that point, the cumulative and non-cumulative frameworks described above no longer apply to domestic transactions. Companies that begin adapting systems and internal processes during the 2026 test phase will be in a stronger position when the full CBS rate takes effect.