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Everything you must know about the taxation regime for legal entities in Brazil

Posted 2022-07-29 Everything you must know about the taxation regime for legal entities in Brazil / Tudo que você precisa saber sobre regime de tributação de empresas no Brasil

Incorporating a business in Brazil maybe requires a little more planning by the investors when compared with the opening of businesses in other countries. Due to the numerous laws and taxation regimes, investors often need guidance from tax accountants specialized in audit and review in Brazil.

By being aware of this, Europartner, a tax accounting firm in Brazil, listed some very useful tips herein. These are directions that will surely help future investors in the mission to open new businesses in Brazil.

What is the taxation regime?

 

In short, the taxation regime is a system used to define the charging of taxes of each CNPJ (Corporate Taxpayer ID), according to the collection volume.

The regime to be selected for each incorporated business depends on factors, such as

  • Type of activity performed;
  • Business size (small, medium or large);
  • Business income.

There are basically three types of taxation regimes adopted in Brazil: Simples Nacional, Lucro Real and Lucro Presumido. Hence, let’s get to know each one of them more deeply.

Simples Nacional

Established by the Complementary Law 123, of December 2006, Simples Nacional taxation regime simplifies the payment of taxes by the companies classified in the categories of Micro (ME) and Small (EPP) businesses.

In addition, it also sets provisions for simplified processing to small entrepreneurs, with settlement of taxes using a single payment slip.

Tax rates of Simples Nacional range from 4% to 22.90%, distributed in six annexes that cover numerous economic activities.

Indeed, the choice for Simples Nacional is the most recommended one for companies with annual income up to R$4.8 million. However, before choosing this regime, consult a specialized accountant to receive more appropriate guidance.

After all, the professional will gather some data about your company (income, number of employees, etc.) to accurately define the best taxation regime for your business.

Lucro Real

This is a model of taxation regime with the purpose of measuring some of the most important taxes paid by companies in Brazil, namely:

  • Corporate Income Tax (IRPJ)
  • Social Contribution on Net Income (CSLL)

In the Lucro Real regime, the booked profit of the company defines the Income Tax, plus the adjustments required by tax laws. This regime establishes tax rates of 9% and 15% and 9%, in addition to PIS and COFINS taxes, with rates ranging from 0.65% to 7.60%.

As this is a more complex taxation regime, it is usually recommended for companies with profit margin below 32%. Some institutions must mandatorily adopt Lucro Real as their taxation regime, namely:

  •     Banks;
  •     Savings Banks;
  •     Credit cooperatives;
  •     Private insurance and capitalization companies;
  •     Privately and publicly held pension companies;
  •     Leasing companies; among others.

Lucro Presumido

Companies with annual income up to R$78 million may choose for Lucro Presumido regime, which establishes the calculation basis of the Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) of these businesses.

According to the activity performed by the company, rates may vary for these taxes. Namely, the rate is defined as 8% for industrial and trade companies, and 32% for service provider companies.

In regard to PIS and COFINS, the taxes are measured in a cumulative way. That is, no reduction is permitted in these taxes due to the company purchases; tax rate is 3.65% on income.

Is it possible to change the taxation regime after audit and review?

Audit and review activities in Brazil are a solution for companies that need or wish to change the taxation regime. This change is often required due to many reasons, for example, to reduce the tax burden on the operations of a company.

However, it is essential to trust the change to an expert accounting firm. By doing that, the accountant takes responsibility for cancelling the current regime option and changing to the new regime, in accordance with the deadlines disclosed by the Federal Tax Authority.

Then, if you need to reduce the tax burden of your business to increase your profits, consider entrusting the conduction of audit and review in Brazil with Europartner.

Our team of experts is ready to service you. Contact us!

Author's post: Europartner Accounting