State Value-Added Tax (ICMS) (SAP Library

State Value-Added Tax (ICMS)

Definition

Use

ICMS is applied when goods or services are sold or transferred. The cost of freight and insurance are usually, but not always, included in the base value used for calculating ICMS.

ICMS is reported in Modelo 9, Directory for Calculating ICMS Tax (Registro de Apuração do ICMS).

The tax region Zona Franca de Manaus, a special duty-free zone created by government incentive to promote development, represents a special case for ICMS calculation: It must be calculated, but it is subsequently discounted – so that no ICMS payments are made. A few other regions, called the Cidades Conveniadas, possess a similar status.

Integration

Several factors influence the percentage rate and base value of ICMS:

Where the goods originate from and where they are being shipped to
Product codes

ICMS exemptions are possible for certain products. An exemption can be either permanent or valid only through a specified date, and its validity can apply to one state or it can extend to all states.

Different or reduced ICMS rates are applied to certain products. Reduced rates are only charged within one state; therefore, the rates do not depend on the states of origin and destination.

For some products, ICMS is calculated on a reduced base (for example, 80% of the goods' value is taxed and 20% is not taxed). As is the case with exemptions, the base-value reduction can be valid either permanently or only for a specified time period. Reduced bases are only applied within one state, so again, they do not depend on the states of origin and destination.

Customer

Some companies are not subject to ICMS, such as some government-owned companies.

Usage of the goods

The base value for calculating ICMS depends on the usage of the goods. If a customer buys goods for production or resale, ICMS is calculated on the goods' value not including IPI. If the goods are earmarked for consumption, the base value used to calculate ICMS is the value of the goods plus IPI.

In addition, the usage determines how the system posts the amounts in Purchasing (MM-PUR). If the material's usage is production or resale, the tax amounts are posted to separate line items. If the usage is consumption, the tax increases the value of the material and it is nondeductible.

Rate Determination in Materials Management (MM) and Sales and Distribution (SD)

When you enter a purchase order in MM or a sales order in SD, the system derives the ICMS rate from the following factors:

Factor	MM	SD
Tax code	The FI tax code determines whether the system must calculate ICMS	The pricing procedure checks the SD tax code: If the Calculate ICMS indicator is set, the system calculates ICMS. You specify the SD tax code in the sales order on line-item level.
Master record	Vendor master: The system checks the tax jurisdiction code of the vendor to determine the ship-from tax region, which is required to find the ICMS rate. In the case of conhecimentos, the system may calculate ICMS on a reduced base value of 80%. To obtain this reduced base value, enter 1 in the Tax base field, on the Control screen.	Customer master: The system checks the tax jurisdiction code of the customer to determine the ship-to tax region, which is required to find the ICMS rate. If the ICMS-exempt indicator is set, the system does not calculate ICMS tax on sales to the customer.
Plant	Receiving plant: The system checks the tax jurisdiction code of the receiving plant to determine the ship-to tax region, which is required to find the ICMS rate.	Issuing plant: The system checks the tax jurisdiction code of the issuing plant to determine the ship-from tax region, which is required to find the ICMS rate.
ICMS rate	The system searches for the rate as described here.

See also:

ICMS Tax Law