The computation of ICMS (Imposto sobre Circulao de Mercadorias e Servios, a Brazilian state-level VAT) “por dentro” (inside) refers to a method of calculating the tax where the ICMS amount is included within the price of the goods or services subject to taxation. This differs from calculating the tax “por fora” (outside), where the tax is added to the base price. For example, if a product is sold for R$100, and the ICMS rate is 18% calculated “por dentro,” the actual base price of the product is lower than R$100, as R$18 of that R$100 is attributable to the ICMS itself. The calculation requires a formula to determine the base price and the actual ICMS amount within the final price.
This methodology is crucial for accurate pricing strategies, tax compliance, and financial planning within Brazilian businesses. Properly determining the embedded ICMS is essential for correct accounting practices, avoiding penalties from tax authorities, and ensuring competitive pricing. Historically, the adoption of this method has aimed to simplify tax collection and ensure that the tax base is consistent across different states. Accurate “por dentro” calculations are also critical when determining profit margins and assessing the true cost of goods sold.
