- 26/11/2021 -

What is ICMS? Who pays and who is exempt from this tax?

Those who undertake know that, when the subject is tax, it is an acronym that no longer ends: IRPJ, ISS, CSLL, PIS, IPI… Of all of them, however, one that generates more doubts is ICMS – referring to one of the main taxes paid by business owners. But, after all, what is ICMS?

What is ICMS?

ICMS is the acronym for Tax on the Circulation of Goods and Services of Interstate and Intermunicipal Transport and Communication. Regulated by the Kandir Law (Complementary Law 87/1996), it is a state tax and its values are defined by the states and Federal District.

Basically, the ICMS is the tax that is levied when a taxable product or service circulates between cities, states or from legal entities to individuals (as when a household appliance shop sells a microwave to a customer).

Can you give me an example?

Of course! Let’s think about the case of Fernanda, a coffee producer from the interior of the state of São Paulo who sells her production to Ricardo, owner of a coffee roaster in the capital.

When Fernanda sells the coffee to Ricardo – that is, when the bean leaves the interior and goes to the capital – she pays ICMS on this movement.

It doesn’t stop there. When Ricardo sells the roasted coffee to coffee shops, he also pays ICMS tax on that movement. The coffee shops pay ICMS when they sell coffee to customers.

In other words, ICMS is at all stages of the chain: from production to sale to the final consumer.

What is the ICMS levied on?

The ICMS is a tax that is in almost everything that is part of our lives:

  • Operations relating to the purchase of goods in general, including the supply of food and beverages in bars, restaurants and similar establishments;
  • The provision of interstate and intermunicipal transport, by any means, of people, goods, merchandise or valuables;
  • The provision of telecommunications services;
  • Supply of goods with services;
  • Importation of goods from abroad, whatever the purpose;
  • Services rendered abroad or that have started outside the country;
  • Entry, in the State of destination, of oil, including lubricants and liquid and gaseous fuels derived from it, and of electric energy, when not destined for commercialization or industrialization.

What is exempt from ICMS?

On the other hand, some movements are exempt from ICMS:

  • Transactions with books, newspapers, periodicals and paper intended for printing;
  • Transactions and services intended for the exterior of services or goods, including primary products and semi-finished industrial products;
  • Interstate operations related to electric energy and oil, including lubricants and liquid and gaseous fuels derived from it, when intended for industrialization or commercialization;
  • Operations with gold, when defined by law as a financial asset or foreign exchange instrument;
  • Operations with leasing;
  • Fruit and vegetable operations;
  • Operations of agricultural inputs (including seedlings and seeds);
  • Acquisition of vehicles adapted for people with physical disabilities;
  • Among other operations that you can check in the law that regulates the ICMS.

How does ICMS work?

Considering that ICMS is the tax levied on the circulation of goods and services, it is only paid when ownership of the goods or service passes from one company to another – or from the company to the customer.

In Fernanda’s case, the coffee producer, this happens when she issues an invoice to the buyer, and he pays the invoice, earning the right for the coffee.

When this happens, we say that there is a taxable event that must be paid to the State. It is important to remember that, except for electric power and oil derivatives, ICMS is charged in the state of origin of the goods or services.

How to know the ICMS rate?

As we said, the ICMS is a state tax and its rate is defined by the states and the Federal District. The value of the tax, however, is different for internal (within states) and interstate (between states) movements.

It is also important to remember that the rates vary according to the goods or services, ranging from 7% to 35%.

For internal movements, the ICMS rate is that of the state – which generally ranges from 17% to 19%. See below the figures for 2019.

Acre – 17%
Alagoas – 17%
Amazon – 18%
Amapá – 18%
Bahia – 18%
Ceará – 17%
Federal District – 18%
Holy Spirit – 17%
Goiás -17
Maranhão – 18%
Mato Grosso – 17%.
Mato Grosso do Sul – 17%.
Minas Gerais – 18%
Pará – 17%
Paraíba – 18%
Paraná – 18%;
Pernambuco – 18%
Piauí – 17%;
Rio Grande do Norte – 18%
Rio Grande do Sul – 18%
Rio de Janeiro – 19%.
Rondonia – 17%
Roraima – 17%
Santa Catarina – 17%.
São Paulo – 18%
Sergipe – 18%
Tocantins – 18%


For interstate movements, the bill is a little more complex. In this case, it is necessary to calculate the difference between the internal and interstate rates of ICMS – called Differential of Aliquot or Diffal. Let’s talk more about this below.


For imports, the ICMS rate is 4%.

What is rate differential (DIFAL)?

The ICMS rate differential is an instrument created to protect the competitiveness of the state where the buyer of the goods or services is based.

What do you mean?

Imagine that, in São Paulo, certain goods are cheaper because the ICMS of the state is lower. It would be natural for individuals and companies, even from other states, to buy from São Paulo to save – which would end up affecting the producers and the revenue of other states. It was precisely to balance this scenario that the tax differential emerged.

How does the tax rate differential work?

The rate differential is the difference between the internal rate of the receiver and the interstate rate of the sender.

Let’s assume that the internal rate of a State is 18%. The interstate rate of another state is 7%. Therefore, the rate differential in this transaction is 11% (18% – 7%).

It is also important to say that the diffal is collected by the state of destination of the goods.

It is possible to find the interstate tax rates on the websites of the Secretary of State for Finance (Sefaz) of each state.