Running a Software Development Center in Brazil: Export Taxes, FX and the Tax Reform

Brazil has become a common location for software engineering teams that serve the rest of a group: a subsidiary hires developers locally and charges the parent, or another group company, for the work. The model is simple to describe and less simple to run. The subsidiary’s revenue comes from abroad, its costs are mostly payroll in reais, and each layer of Brazilian tax treats “export of services” a little differently. On top of that, the consumption tax reform is replacing the taxes that apply today. This guide explains how a captive software development center is taxed in Brazil and what the group should decide before the first invoice.

The typical structure

In most cases the Brazilian entity is a limited liability company (Ltda) owned by the group. It employs the engineers, invoices a group company abroad for development services, usually on a cost-plus basis, and receives payment in foreign currency. The intellectual property normally stays with the foreign company that pays for the work. Each of these choices has a tax consequence in Brazil, so the intercompany agreement should be written with Brazilian rules in mind, not only the parent’s.

ISS: when is a service really exported?

ISS is the municipal tax on services. Complementary Law 116/2003 says ISS does not apply to exports of services, but excludes services “developed in Brazil whose result is verified here”, even if paid by a non-resident. Everything turns on where the result of the service occurs, and the law does not define it.

Court decisions and municipal interpretations have gone both ways. A narrow reading treats the result as the completion of the work, which for software written in Brazil would mean the result is in Brazil. A broader reading looks at where the client uses and benefits from the service. Municipalities such as São Paulo have issued their own guidance. For a development center, the practical position depends on the city, on what is delivered and on how the contract describes it. A clear contract showing that the software is delivered to and used by the foreign company abroad, with no Brazilian beneficiary, is the starting point.

PIS and Cofins: the foreign currency test

PIS and Cofins, the federal contributions on revenue, do not apply to revenue from services provided to a person resident or domiciled abroad when the payment represents an inflow of foreign currency (Law 10,637/2002, article 5, and Law 10,833/2003, article 6). Proceeds kept abroad, as allowed by foreign exchange law, also qualify. Payments received in reais from a non-resident’s account in Brazil, or services whose beneficiary is in Brazil, are where disputes arise.

This regime ends on January 1, 2027, when Complementary Law 214/2025 repeals PIS and Cofins and the federal CBS takes their place.

After the reform: CBS and IBS on exported services

The new value-added taxes, CBS (federal) and IBS (state and municipal), give exports an immunity: they are not taxed, and the exporter keeps the credits on its inputs (Complementary Law 214/2025, article 79). An export of services is defined as a supply to a person resident or domiciled abroad that is consumed abroad (article 80).

Complementary Law 227/2026 amended that definition. Consumption abroad is now determined by the place-of-supply rules of the law and, in the remaining cases, by both the buyer and the recipient being resident abroad. When a service is rendered partly in Brazil and partly abroad, only the portion executed or consumed abroad counts as an export. For a development center billing a foreign group company, the key facts are who contracts, who receives the work and where it is used.

The practical change is that the export test moves from “foreign currency inflow” (PIS and Cofins) and “result abroad” (ISS) to “consumption abroad” under one set of rules, with credits on inputs. See Brazil’s tax reform explained for foreign headquarters.

Foreign exchange: keeping proceeds abroad

Since Law 14,286/2021, Brazilian exporters of goods and services may keep their export receipts in foreign currency abroad. In practice most captive centers bring the money in to pay salaries in reais, but the option helps a group that wants to manage currency centrally. Foreign currency received is recorded through a foreign exchange contract with a Brazilian bank.

Transfer pricing: the price of the service

Because the client is a related party abroad, the price must follow the arm’s length principle under Law 14,596/2023, in force since 2024. For a captive center, the most common approach in practice is cost plus a markup, a method the law allows. The questions are which costs enter the base (all costs of rendering the service, under the law) and which markup is consistent with what independent parties would agree, given the functions, assets and risks of the Brazilian entity. Simplified approaches for low value-adding services are generally not available for activities such as software development that form part of the group’s core business or create intangibles. Documentation should exist from the start (see our transfer pricing guide).

Payroll: the end of the IT payroll relief

Payroll is the largest cost of a development center (see the cost of an employee in Brazil). For years, IT companies could replace the 20% employer social security contribution on payroll with a contribution on gross revenue (CPRB), from which export revenue is excluded. Law 14,973/2024 phases this out:

For a center whose revenue is almost all exported, the revenue-based contribution was very low, so the payroll contribution now rising each year translates directly into higher cost. The cost-plus price charged to the group should be reviewed every year until 2028 (see how the payroll tax relief phase-out works).

Income tax and R&D incentives

There is no income tax exemption for exported services: the subsidiary pays corporate income tax (IRPJ) and CSLL under Lucro Real or Lucro Presumido like any other company (see Lucro Real or Lucro Presumido for a foreign-owned subsidiary). Under Lucro Presumido, a cost-plus entity can end up taxed on a presumed profit well above its actual margin, especially since the 2026 increase in presumption percentages above R$5 million of revenue.

The main federal R&D incentive, the Lei do Bem (Law 11,196/2005), allows an additional deduction of R&D expenses in the calculation of taxable profit and is therefore available only under Lucro Real. Whether a center that develops software on behalf of a foreign group company, which keeps the intellectual property, can use it needs a specific analysis.

A checklist for the group

1. Write the intercompany agreement so that the recipient, the delivery and the use of the work abroad are clear.
2. Check the ISS position with the city where the center is registered.
3. Receive payment in foreign currency through a foreign exchange contract, and keep the evidence.
4. Prepare for the CBS and IBS export rules in invoicing and the ERP before 2027.
5. Set and document the cost-plus markup, and review it as payroll contributions rise.
6. Model the income tax method with the center’s own numbers, including R&D incentives.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil, including technology companies. Our tax and accounting teams model the cost of a development center, support the export analysis for ISS, PIS, Cofins and the new CBS and IBS, and run the monthly accounting, payroll and invoicing. Read our guide for technology and SaaS companies in Brazil or talk to our specialists.