Tax and Fiscal Obligations of Condominiums

A BRIEF SUMMARY

Condominium ownership is the legal form used to regulate condominium ownership in buildings under Federal Law (Law No. 4,591/1964 and Civil Code Law No. 10406/2002). It is characterized by the existence of common areas within autonomous units for exclusive use, thus it is considered a right exercised over a property by two or more individuals or legal entities.
According to the Brazilian Federal Revenue Service, for tax purposes, a condominium is not classified as a legal entity or equivalent; however, for labor and social security purposes, it is considered equivalent to a legal entity, which generates various obligations for withholding and paying taxes and contributions, and for providing information classified as ancillary obligations.

ADMINISTRATION AND ACCOUNTING

The administration is carried out by the condominium owners themselves, who are represented by the building manager and the fiscal council, whose powers and responsibilities are defined in the Condominium Bylaws and in a general assembly. Administration may also be carried out with the support of a duly contracted company specializing in condominium administration.
Tax and accounting documentation must be kept in good order for accountability purposes to condominium owners and public bodies such as the Ministry of Labor, the Federal Revenue Service, and other municipal and state agencies.

1. Obligations to the Federal Revenue Service

1.1 CNPJ – National Registry of Legal Entities
Condominiums are required to register with the CNPJ (Brazilian National Registry of Legal Entities), with the building manager being responsible to the Federal Revenue Service.

1.2 – TAXES AND CONTRIBUTIONS

1.2.1 – IRRF – Income Tax Withheld at Source

Condominiums are required to withhold income tax on salaried employees' earnings.
According to Tax Ruling No. 17 COSIT of January 2017, withholding of Income Tax is not mandatory for payments made to legal entities or self-employed professionals.

1.2.2 – PIS/COFINS/CSLL

Condominiums are required to withhold PIS/COFINS/CSLL taxes on payments made to legal entities for professional cleaning, conservation, maintenance, security, surveillance, cash-in-transit, and labor outsourcing services, as well as for credit, marketing, credit management, selection and risk assessment, accounts payable and receivable management, and professional services.

1.2.3 – Social Security – INSS

1.2.3.1 – INSS: WITHHOLDING TAX FOR LEGAL ENTITIES

Condominiums that contract services through labor outsourcing or subcontracting, including temporary work arrangements, must withhold 11% from the gross value of the invoice, bill, or receipt and pay the withheld amount using a specific tax collection document.
The legislation lists the activities subject to withholding tax. We cite some services commonly used by condominiums:
• Cleaning, maintenance or upkeep that includes sweeping, washing, waxing, or other services intended to maintain the hygiene, cleanliness or preservation of beaches, gardens, highways, monuments, buildings, facilities, premises, public spaces, streets, courtyards or common areas.
• Surveillance or security aimed at guaranteeing the physical integrity of people or the preservation of property.
• Civil construction involving the construction, demolition, renovation, or addition of buildings or improvements attached to the ground or subsoil, or complementary works that integrate into this complex, such as the repair of gardens and sidewalks, installation of fences or recreational equipment, urbanization, or signage of highways or public roads.

1.2.3.2 – EXEMPTION FROM INSS WITHHOLDING

The condominium is exempt from withholding tax at source when the amount corresponding to 11% of services is less than the minimum limit established for collection; the contracted company has no employees and the service is provided by the owner or partner; the contract involves services related to a profession regulated by federal legislation, or defined training and teaching services, provided they are provided by the partners.

1.2.3.3 – INSS CALCULATION BASIS

Materials and equipment specified in a contract or invoice are not included in the INSS (Brazilian Social Security) calculation base, provided that this value does not exceed 50% of the invoice value. Expenses for transportation and meal vouchers are also deductible. These expenses must be properly documented.

1.2.3.4 – INSS: WITHHOLDING TAX FOR INDIVIDUALS

Condominiums that hire employees and/or self-employed professionals (individuals) are required to withhold INSS (Brazilian Social Security) contributions at source. For employees, the percentage varies from 8% to 11% depending on the salary bracket, and for self-employed professionals, the percentage is 11%.

1.2.3.5 – INSS: EMPLOYER'S SHARE.

The Condominium is obligated to make the Social Security Contributions on behalf of the company (condominium), with the following percentages applied to the payroll:
• 20%: INSS – employer's contribution
• 3%: RAT/FAT
• 5.8%: THIRD PARTIES
Thus, the cost of Contributions on the condominium payroll is around 28.8%.

1.2.4 – PIS on Payroll.

The Condominium is obligated to pay PIS contributions at a rate of 1% on the employees' payroll.

1.2.5 – ISSQN

Condominiums must comply with the municipality's own legislation regarding the withholding and collection of ISSQN (Tax on Services of Any Nature) as well as the ancillary obligations pertaining to this tax.

1.3 – Ancillary Obligations – Federal

1.3.1 – Condominiums are subject to the following obligations:

• DIRF – Declaration on Income Withheld at Source.
• EFD-Reinf – Digital Tax Bookkeeping of Withholdings and Other Tax Information.
• e. Social

1.3.2 – Condominiums are exempt from the following obligations:

• DCTF – Declaration of Federal Tax Debits and Credits.
• ECF – Fiscal Accounting Records
• ECD – Digital Accounting Records – ECD
• EFD Contributions – Digital Tax Accounting of Contributions levied on Revenue

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