For a foreign entrepreneur looking at the vast and dynamic Brazilian market, the prospect of expansion is both exciting and challenging. As Latin America’s largest economy with a consumer market of over 215 million people, Brazil offers unparalleled growth opportunities. However, the country is also notorious for its fiscal and bureaucratic system, considered one of the most complex in the world.

Starting a business in this scenario, the success of it will depend on a series of strategic decisions. The most important of them, from a financial and operational standpoint, is the choice of the corporate tax regime. Making the correct selection not only determines the tax burden but also influences accounting management, operational costs, and the business’s overall viability.

This guide was created to demystify the main Brazilian tax regimes: Simples Nacional, Lucro Presumido (Presumed Profit), and Lucro Real (Real Profit). Before we dive into the details, let’s go over a brief step-by-step guide on what you need to do to start your company in Brazil.

Starting a business in Brazil: a general guide

The process of formalizing a company in Brazil for foreign investors, while complex, follows a logical sequence of steps. Understanding them is the first step toward a successful entry into the market.

• Appointing a Legal Representative: In many cases, the first step for a foreign investor will be to appoint a Legal Representative in Brazil. This individual, who must be a Brazilian citizen or a foreigner with a permanent resident visa, acts as the bridge between your foreign company and Brazilian authorities. They will be responsible for all legal and fiscal actions of the company in the country.
• Defining the corporate structure: You need to decide on the type of company you will open (for example, Limited Liability Company – Ltda. or Corporation – S.A.). This choice will influence the liability of the partners, the form of management, and the tax structure.
• Registration and obtaining the CNPJ: With the Legal Representative appointed and the structure defined, the next step is to register the company with the Board of Trade (Junta Comercial) of the state where it will be established. After this registration, you will obtain the CNPJ (Cadastro Nacional da Pessoa Jurídica or National Registry of Legal Entities), which is the company’s fiscal registration and enables it to operate legally.
• State and Municipal registrations: Depending on the company’s activity, it will be necessary to obtain only municipal or also state registrations. The Inscrição Estadual (State Registration) is only mandatory for companies that conduct commercial or industrial operations, while the Inscrição Municipal (Municipal Registration) is required for all companies.
• Permits and licenses: Finally, the company needs to apply for operating permits and specific licenses, such as those from the fire department, sanitary surveillance, or environmental agencies, depending on the nature of the business.

Once your company is formally incorporated and has its documentation in order, the focus shifts to one of the most strategic decisions: the choice of the tax regime. This decision will directly impact your tax burden, operational fluidity, and business profitability.

Let’s now detail the three main tax regimes.

Read: Legal representation and company administration in Brazil

 

Corporate tax regimes in Brazil: Simples Nacional

The Simples Nacional (National Simple) is, as its name suggests, a simplified and unified tax regime created specifically to make life easier for Micro-enterprises (ME) and Small Businesses (EPP). It is exclusively reserved to the companies whose shareholder is an individual – Brazilian or with the permanent visa in Brazil.

Its main feature is the consolidation of eight different taxes and contributions into a single payment slip, the DAS (Document of Simple National Collection).

Key features and advantages

 

The greatest appeal of the Simples Nacional is its simplicity. Instead of dealing with separate payments for various taxes, the business owner makes a single monthly payment that includes:

• IRPJ (Corporate Income Tax)
• CSLL (Social Contribution on Net Profit)
• PIS (Social Integration Program)
• COFINS (Contribution for the Financing of Social Security)
• IPI (Tax on Industrialized Products)
• ICMS (Tax on the Circulation of Goods and Services)
• ISS (Tax on Services of Any Nature)
• CPP (Employer Social Security Contribution)

In addition to reduced bureaucracy, the regime operates with progressive tax rates, which means the tax percentage to be paid increases as the company’s revenue grows. This makes the regime especially attractive for businesses in their initial stages.

Disadvantages and restrictions

 

Despite its advantages, the Simples Nacional has some important limitations:

• Revenue limit: The company’s gross annual revenue cannot exceed R$ 4.8 million. If this ceiling is reached, the company is required to migrate to the Lucro Presumido or Lucro Real, which can result in a sudden increase in the tax burden.
• Activity restriction: Not all economic activities are eligible for the Simples Nacional. Sectors such as most financial institutions, high-revenue consulting firms, and some advertising activities are excluded. It’s important to verify your business’s eligibility before opting for this regime.
• Does not consider profit: Taxation is based on gross revenue, not on profit. If your company has a low-profit margin, the Simples Nacional may be less advantageous.

Suitable business examples

 

The Simples Nacional is ideal for small and medium-sized businesses in the service, commerce, and industry sectors, including:

• Retail stores, restaurants, and small franchises.
• Digital marketing agencies and consulting firms.
• Tech startups and small software development businesses.

It’s the perfect choice for entrepreneurs who value simplicity and reduced bureaucracy, especially during the first years of operation in Brazil.

Read: Understanding Brazilian accounting standards for effective accounting in Brazil and tax management

 

Corporate tax regimes in Brazil: Lucro Presumido

 

The Lucro Presumido (Presumed Profit) is a regime where the tax calculation base for the IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit) is defined by a pre-fixed percentage of the company’s gross revenue. This percentage varies according to the business activity, thereby presuming its profit.

Key features and advantages

 

• Profit presumption: The rates for profit presumption are fixed, for example, 8% for most commercial activities and 32% for most service activities. Taxation is applied to this presumed profit.
• Higher revenue ceiling: Companies with annual gross revenue of up to R$ 78 million can opt for this regime, which makes it a viable option for a wider range of businesses.
• Individual taxes: Unlike the Simples Nacional, taxes are paid separately. The IRPJ and CSLL are collected quarterly, while others, like PIS and COFINS, are monthly.

Disadvantages

 

• Risk of excessive taxation: The biggest disadvantage is that the regime does not consider the company’s actual net profit. If your business has a profit margin lower than the legal presumption (for example, a 10% margin on a service with a 32% presumption), you will still pay taxes on the presumed profit, which can result in a high and inefficient tax burden.

Suitable business examples

 

The Lucro Presumido is an excellent option for service, commerce, or industrial businesses that have a profit margin above the legal presumption. It’s a common choice among:

• Software development and IT services companies.
• Consulting, architecture, and engineering firms.
• Law and accounting firms.

It’s a safe choice for companies seeking a more predictable tax model without the complexities of the Lucro Real, but with greater flexibility than the Simples Nacional.

Corporate tax regimes in Brazil: Lucro Real

 

Lucro Real (Actual Profit) is the most complex and rigorous tax regime. In this model, the calculation of IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit) is based on the company’s actual net accounting profit, adjusted for additions (non-deductible expenses) and exclusions (non-taxable revenues) as outlined in tax legislation.

Key features and advantages

 

• Actual calculation basis: The tax is calculated on the company’s net profit. If the company has a tax loss, there is no IRPJ or CSLL payment, which is a significant advantage for businesses in the investment phase or those with tight profit margins.
• Tax credits: This regime allows the company to use tax credits for PIS and COFINS, which can be deducted from the taxes owed. For industries and businesses with high input costs, this can result in a significant reduction of the tax burden.
• Mandatory requirement: This is the mandatory regime for companies with an annual revenue exceeding R$ 78 million or those operating in specific sectors, such as banks and credit societies.

Disadvantages

 

• High complexity: The Lucro Real requires extremely detailed and rigorous accounting and fiscal control. The volume of ancillary obligations (declarations, balance sheets, etc.) is significantly higher, which increases bureaucracy and the need for a highly qualified accounting team.
• Operational costs: The complexity of the regime and the need for robust systems and specialized professionals can lead to higher operational costs.

Suitable business examples

 

The Lucro Real is the right choice for companies that fall into one of the following situations:

• Large corporations and holdings with revenue exceeding the Lucro Presumido limit.
• Industries that benefit from PIS and COFINS credits.
• Companies with a low-profit margin or a history of tax losses, as tax is only paid if there’s an actual profit.
• Financial institutions, which are legally required to adopt this regime.

 

Comparative table of corporate tax regimes in Brazil

 

Characteristic	Simples Nacional	Lucro Presumido	Lucro Real
Annual Revenue Limit	Up to R$ 4.8 million	Up to R$ 78 million	No limit (mandatory for revenue > R$ 78 mi)
Tax Calculation Basis	Gross Revenue	Gross Revenue (presumed basis)	Actual Net Accounting Profit
Taxes	Consolidated into a single slip (DAS)	Paid separately (quarterly or monthly)	Paid separately (quarterly or monthly)
Accounting Complexity	Low	Medium	High
Main Advantage	Simplicity and reduced bureaucracy	Predictability and higher ceiling	Greater fiscal fairness (pays on actual profit)
Ideal For	Micro and small businesses	Mid-sized companies with a good profit margin	Large companies, industries, and businesses with tax losses

 

Which corporate tax regime to choose?

Choosing the right tax regime isn’t a one-size-fits-all decision. When it comes to starting a business in Brazil, every company is unique, with its own specific characteristics regarding revenue, costs, and profit margin. An incorrect choice can result in an unnecessarily high tax burden, while the right decision can generate significant savings and boost your business’s profitability.

Given the complexity and constant changes in Brazilian tax legislation, it’s essential that you make your decision with the support of a specialized accounting and fiscal partner. Europartner is the ideal consultancy for your company; our professionals with experience in the Brazilian market can analyze your business projections, simulate scenarios, and recommend the regime that best fits your reality.

By choosing the correct tax regime, you not only ensure legal compliance but also establish a solid foundation for the growth and prosperity of your company in Brazil.

Contact us now and talk to our specialists team.