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New rules for ISS declarations: are you in the know?

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On the 24th of September, Supplementary Law 175/2020 was published which establishes rules for the collection of ISS with regards to services provided by the municipality where the consumer is located (destination), and no longer by the host city of the company that provides the service (source).

The Supplementary Law also established a unified electronic system standard for the collection of ISS, which will be developed for taxpayers following the guidelines put forth by the ISS Accessory Obligation Management Committee (CGOA), the regulatory body for the application of the national standard of accessory obligation.

Thailane Izabel, fiscal leader at Drummond Advisors, comments “today the biggest collection of ISS is concentrated in large capital cities.  With this change, the objective is to spread the collection among more municipalities”.

Regarding the new electronic system, Thailane points out that “From a fiscal operational point of view, the establishing of a national standardized collection system, to collect the unified ISSQN will facilitate the tax calculation process, since the municipalities will be responsible to disclose the rates and applicable legislations.

How to declare

The ISS declaration must be made through the electronic system by the 25th day of the month following the provision of the service and taxpayers must give monthly access to the system to all municipalities and the Federal District. ISS payments must be made by the 15th day of the month following the provision of the service. Each municipality will directly disclose tax rates, tax legislation and account data to be collected in the system.

Who will be affected

The services that will have the collection transferred to the destination are health and medical-veterinary plans; administration of funds, consortia, credit and debit cards, customer portfolios and post-dated checks; and commercial leasing.

The change will be gradually applied until 2023.  It is hoped that the change to the payment locale will start on the 1st of January 2012.  In 2021, 33,5% of taxes will be collected at the source and 66,5% at the destination.  In 2022, it will change to 15% at the source and 85% at the destination.  Starting in 2023, 100% of the ISS will be with the municipality where the service is provided.

An important aspect related to the ISS withholding tax and the new LC 175, which affects many companies today, is that, for the services listed in article 1, municipalities will not be able to assign retention responsibility to the policyholder, that is, who collects is the taxpayer. “This avoids a frequent situation that we call double taxation of the ISS that ends up affecting the revenue obtained by companies”, says Thailane Izabel. “This update only covers services related to federal codes: 4.22, 4.23, 5.09, 15.01 and 15.09. The rule remains the same for other segments,” he adds.

With LC 175 there still exists the possibility to postpone the collection and declaration responsibilities for January, February and March 2012; principal and ancillary obligations for these months may be carried out until April 15, 2021.

What is the ISS?

The Services Tax (ISS) is levied on services provided by companies and independent professionals. Also known as Tax on Services of Any Nature (ISSQN), it is collected by the municipalities and the Federal District. Almost all operations involving services result in the collection of this tax, which makes it extremely important.